Olivant bid for bank backed

Nov 29 2007 Evening Gazette

NORTHERN Rock’s private equity suitor Olivant is understood to have gained Treasury backing to draw up a bid to rival Sir Richard Branson’s offer.

Olivant boss and former Abbey chief Luqman Arnold is said to have held a constructive meeting with the so-called “tripartite authorities” late on Monday, according to reports.

The Bank of England, the Treasury and the Financial Services Authority are believed to have been supportive of Mr Arnold’s plans to run Northern Rock as a going concern.

Olivant, which was not immediately available for comment, is now thought to be pressing for financial information needed from Northern Rock to put forward a firm proposal for the bank next week.

Treasury blessing for Olivant puts pressure on the Virgin-led consortium, with Mr Arnold’s proposals seen as a shareholder favourite amid increasing investor unrest over Sir Richard’s plans.

The Virgin consortium is offering to put in £1.3bn of funds into Northern Rock in return for a stake of at least 55%, with some of the funds raised by offering shareholders further shares at a discounted 25p each.

The deal is thought to value Northern Rock at around £225m - a fraction of the £5.2bn value seen in February before summer’s crisis hit.

However, Olivant is proposing to run Northern Rock as a going concern, buying only a minority holding and installing Mr Arnold as chief executive with a heavyweight supporting management team to turn the business around.

Meanwhile the Governor of the Bank of England was today set to face questions from MPs amid increasing concern about economic difficulties in the UK.

Mervyn King will appear before the Commons Treasury Committee to discuss this month’s inflation report.

The Bank signalled two rate cuts were on the way in 2008 as the economy faces a squeeze from higher inflation and slowing growth.

But it said that inflation would meet its 2% target if borrowing costs fell by 0.5% from its current 5.75%, although the Governor warned that there was a “less benign” environment now.