Northern Rock Still Looking For Buyer
Northern Rock has struggled to find a buyer, but says it has received "indicative expressions of interest" from companies who might be considering making a move for the beleaguered bank. However, the news is not all good, as one offer for the bank was below its closing share price of 97p last Tuesday.
Rock said that the interest may not necessarily lead to an offer for the bank, or even an investment in it.
JC Flowers, a US buyout firm, submitted on Tuesday of last week which included and offer to shareholders of "nominal value". There was also a second bid from US private equity firm Cerberus.
In addition to the two US firms there has been some interest from the Virgin Group and investment group Olivant.
Northern Rock shares have tumbled this week, closing at 84.8p last Wednesday.
The bank was hit by the global credit crunch in September, leaving it unable to borrow on the open markets, and forcing it to go to the Bank of England to fund its operations. Its business model was based on borrowing, which it was unable to sustain.
The UK's third largest buy-to-let mortgage lender Paragon is heading the same way. Its shares fell 40% and 20% on Tuesday and Wednesday of last week respectively. Again, its source of funds has dried up as a result of the credit squeeze. Paragon has no savers at all to provide it with cash. It may issue a £280m rights issue if it cannot find any other form of finance before the end of February.
The Bank of England has already lent Northern Rock £24bn in emergency funding, and the government is coming in for increasing criticism for its stance. Both Conservative and Liberal Democrats have complained about the loans, but Chancellor Alistair Darling told the commons last Monday that he thought the loan was the right move to give the bank some time to consider its strategic options.
The government may have to intervene to determine the bank's future. It could let the bank go under; it could look for a private buyer; or it could take the bank over - nationalise it.
The bank itself would like to secure the future as soon as possible. There are 6,000 staff to consider. A statement from the bank said: "The company's advisors have begun discussions with a number of selected interested parties to clarify their proposals. The company is aware that all stakeholders in the company want clarity on the outcome of the strategic review as soon as possible and is therefore progressing the process as quickly as possible."
Northern Rock said the review would be completed by Friday, with an announcement on its future expected before then.
It also said: "There can be no certainty that the discussions with interested parties will lead to an investment in or offer for the company or for all or any part of its business or that any such investment or offer will be implemented."
The bank also confirmed that existing deposit guarantee arrangements announced by the Treasury, and the revised facilities agreed with the Bank of England will remain in place, including all existing, re-opened and new accounts.
Published on November 27, 2007
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