Virgin issues ultimatum over Northern Rock

'Take it or leave it,' the bank's would-be saviour tells ministers as it calls on them to back its rescue plan and stand up to EU regulators
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Virgin Money has tabled a "take it or leave it" ultimatum to ministers over its rescue plan for Northern Rock during crunch talks at the weekend.

The two sides are understood to be at loggerheads over how the offer should be treated ahead of its scrutiny by EU regulators.

Ministers want the company to agree to any changes imposed by the regulators after "shaking hands" on a deal, regardless of what changes are demanded. But Virgin believes that its offer should stand and that the Government should be prepared to fight for it.

People with knowledge of the talks have pointed out that several European countries have poured billions into their banks and that EU regulators have, in effect, waved this through. The Virgin bid to take control of Northern Rock should, for the same reason, stand, they feel.

There is also confusion over the success fees for the battery of legal, banking and PR advisers retained by the Northern Rock board, which has been working on a rival offer of its own. The fees are believed to be in excess of £50m but it is not clear whether they would be payable if Virgin took control.

Intense talks have been taking place and Virgin is thought to have improved its offer, pledging a windfall to the taxpayer of up to £200m should the bank be revived within three years, along with an increase in the fee paid to the Government for turning £25bn of loans advanced to the bank into bonds.

The bank's board tabled a last-minute "improved proposal" to ministers on Friday. It would see a £700m share issue to shore up the bank's capital base, up from £500m, beside what sources said were "improved terms" on how much of the £25bn pumped in to keep Northern Rock afloat will be immediately repaid.

The bank's advisers have privately conceded that Virgin's bid is in the lead and their offer has little chance of succeeding save through a change of heart by the Treasury. That is despite opposition to Virgin's bid by hedge funds RAB Capital and SRM Global, which hold more than a fifth of the bank's shares.