Northern Rock soars as the bidding reopens
Shares in Northern Rock soared by almost 50% today as the City bet on new bids for the failed bank after the Government confirmed its private sector rescue plans.
The shares jumped 29p to 93½p as investment bankers scrambled to work out details of the Government's latest plan. Virgin Money and Luqman Arnold's Olivant are the two preferred bidders while Northern Rock, under chairman Sir Bryan Sanderson, is still working on its own standalone solution. But effectively today the Government was forced to re-open the bidding process to anyone.
Now the Treasury has said it will underwrite more than £25 billion of bonds issued against Northern Rock's mortgage books the proposition for any potential bidder is, in theory, rosier than at any time since the former building society went to the Bank of England for emergency funding on 12 September.
That led, two days later, to the first run on a British bank in living memory.
Goldman Sachs was brought in by the Government to come up with a financing plan that could be used by any potential rescuer of Northern Rock. Its bare details were outlined by the Treasury today. But the full nitty-gritty has yet to emerge.
The Treasury said: "A term sheet of the principal terms and conditions of the proposed financing structure will be provided to interested parties shortly."
The deadline for proposals to be put to the Tripartite Authorities (the Treasury, Bank of England and Financial Services Authority) is 4 February. That is very tight and even a delay of a day or two in Goldman putting out detailed plans will make it even harder for new bidders to come up with proposals.
David Buik of BGC partners said: "The deadline is not very far away and while parties which were previously interested will be able to dust off their original proposals, I think it will be pretty hard for anyone new to come up with a plan that quickly."
Bidders that have dropped out of the running in the last four months include US private-equity houses JC Flowers and Cerberus and a more nebulous consortium headed by Welsh businessman Alf Gooding.
Analysts said JC Flowers, run by former Goldman Sachs executive and New York socialite Christopher Flowers, is the most likely to be poring over the new financing plan. But it also has larger fish to fry with a possible £4 billion bid for Friends Provident.
Lloyds TSB could also return to the fray as the Government has now come up with exactly the type of guarantee it sought when the Bank of England held talks with it to forge a secret takeover of Northern Rock before its plight was made public. The Government refused to underwrite its bid then.
Banco Santander, which took over Abbey for £8.9 billion, could achieve its stated expansion plans in the UK at a stroke if it bought Northern Rock. Under Spanish law it would also enjoy tax breaks available to few other bidders.
