£10bn lifeline hope for Northern Rock
THE campaign to save Northern Rock from a cut price takeover has been strengthened by reports the troubled bank has been offered a financial lifeline worth up to £10bn.
US banking giant Citi is believed to be prepared to lend the bank between £5bn and £10bn to help ease its funding crisis.
And there is talk that chief executive Adam Applegarth could remain in place with his senior team, according to several sources yesterday.
Northern Rock refused to comment.
The exact terms of any deal with Citi are said to be still the subject of negotiation, but the funding would enable Northern Rock to stop borrowing at the Bank of England’s emergency rate, which is thought to be about 7%.
It would also put the UK’s fifth biggest mortgage lender on a more stable footing, and enable it to continue as an independent group, thwarting the circling bidders.
The prospect of Northern Rock remaining independent, with Citigroup’s help, will of course appeal to employees, but potentially also to the Government to avoid the embarrassment of private equity taking control for a token amount and significant job losses.
Last week it emerged New York-based private equity firm JC Flowers had raised £15bn to make a bid and the fund’s head Chris Flowers is said to have gained funding commitments from JP Morgan, Credit Suisse and Wachovia.
The private equity chief, who specialises in takeovers of distressed financial firms, was said to be keen to keep the Newcastle-based lender intact, unlike Cerberus, the rival private equity firm that is also rumoured to be interested in parts of the business.
Northern Rock has not disclosed how much it has borrowed from the Bank of England but analysts speculate it could be as much as £10.9bn. The bank’s stock market value has tumbled to £700m since it was forced to seek emergency funding from the Bank.
It suffered the first run on a UK bank in 150 years last month, as it struggled with soaring borrowing costs.
Northern Rock spokesman Brian Giles said: “Northern Rock has previously confirmed that it was considering a number of potential transactions, but I have no comment to make on any of those particular approaches.”
