JC Flowers, the private equity firm, refiled its bid for Northern Rock yesterday and won the right to discuss its proposals with the Treasury. Government officials also plan to hold talks with the consortium put together by Luqman Arnold, although Virgin Money remains Northern Rock's preferred bidder.
JC Flowers' revised proposals are understood to reflect the Treasury's requirement that the Government should rank alongside other creditors. At the Treasury's request, JC Flowers has also come up with suggestions for how existing shareholders could retain a stake in Northern Rock, possibly through keeping the bank as a listed company. Mr Arnold's plans hold out similar hopes for the bank's investors.
The question of returns for shareholder is crucial because while the authorities had initially said they were most concerned with issues of financial stability, consumer interests and protecting the taxpayer, the Government has come under increasing pressure from investors not to let Northern Rock be sold off cheaply so that new owners can reap massive gains.
Northern Rock is working with Sir Richard Branson's Virgin Money to agree a deal before Christmas, but the bank and the authorities have said they will keep talking to other suitors.
The sale process was revved up this week when Virgin was named as preferred bidder, partly because deposits were continuing to drain away from Northern Rock.
In a bid to stem these outflows and bring in new customers, Northern Rock raised its savings rate yesterday. At the same time, with limited funds to back new loans, it has slashed its product range for unsecured lending.
The company has raised the rate on its Silver Saver account for the over-50s to a market-leading 6.49 per cent. It is offering the same rate for its online tracker account, which has an increased bonus of 1.24 per cent if savers keep their money in for a year. A spokesman said:"These rates are intended to improve our competitive position in the savings market as well as help retain existing customers."
The Bank of England's balance sheet released on Thursday showed an extra 2.7bn of "other" lending, much of which was probably to Northern Rock to replace deposits.
Meanwhile, the bank has withdrawn its Visa credit card from sale to new customers. The card is backed by the Co-operative Bank, which took over Northern Rock's credit card business in 2003. It has also scrapped online Eskimo unsecured loans and ended five-year fixed-rateTogether mortgages, which include up to 30 per cent of unsecured borrowing.
The bank is due to publish a trading update early this month, although no date has been set for the announcement.Reuse content