Wood's hedge fund builds 10% stake in Northern Rock

SRM Global Master Fund, the hedge fund that is Northern Rock's biggest shareholder, continued to build its stake in the bank yesterday even as expectations for nationalisation increased.

SRM, run by Jon Wood, a former star UBS trader, now owns nearly 10 per cent of the troubled lender after announcing an increased stake each day this week.

Mr Wood's stakebuilding is being closely watched by other investors at a time when potential bidders are said to be struggling to arrange funding with banks. Traders said SRM's latest share purchase drove Northern Rock's share price up nearly 5 per cent yesterday.

The Monaco-based fund first bought into Northern Rock in October after the bank's share price crashed in the wake of its emergency funding from the bank of England and the run on its retail deposits. Its stake now stands at 9.74 per cent, up from 9.1 per cent before this week's announcements.

SRM and RAB Capital, another hedge fund that bought shares after the share price crashed, are trying to block any sale of the bank that leaves them and other shareholders out of pocket. They have called for an extraordinary meeting, expected next month, to vote on a resolution allowing investors to veto a sale of more than 5 per cent of its assets.

Between them, SRM and RAB now hold 16.4 per cent of Northern Rock's shares. They support Olivant's bid to run the bank without a change of control and are understood to be among the shareholders that have offered to underwrite a rights issue if Olivant beats Sir Richard Branson's Virgin Money consortium.

SRM's purchase helped support Northern Rock's volatile shares after Bradford & Bingley rejected a report that it was looking to buy some of the banks assets. Bradford & Bingley is said to have expressed an interest in some of Northern Rock's mortgages when a sales prospectus was sent out early last month.

The Prime Minister and the Chancellor did not rule out nationalisation of Northern Rock yesterday as they appeared together at a news conference. But they said they still hoped to come up with a solution that would see the bank return a big chunk of the Bank of England's 25bn loan.

The Governor of the Bank of England, Mervyn King, fuelled speculation about nationalisation on Tuesday when he told MPs that tightening financial markets had made it harder for bidders to raise the finance that would be needed to pay back the Bank's loans.

Northern Rock said that Andy Kuipers, previously Northern Rock's head of marketing and sales, had been confirmed as chief executive by the Financial Services Authority after the departure last week of Adam Applegarth.