Shares in embattled Northern Rock fell by more than a quarter on Monday amid fears that the bank would be sold at a knockdown price.

Artemis declares stake

A second hedge fund declared a stake in Northern Rock as Artemis, the £16bn Scottish fund manager, said it had built a 1.6 per cent holding in the bank over the past two weeks.DE Shaw, a large US hedge fund known for its quantitative, or computer-driven, trading, said it had a 1.42 per cent stake on Friday, although it had also sold short a small position.

The holdings follow heavy shorting of Northern Rock by hedge funds betting that its shares will decline. Two weeks ago it became the most heavily shorted FTSE 100 stock on record and demand to sell short was so great that it became impossibleto borrow its shares, required by those wanting to short. It is unclear whether DE Shaw’s holding is dictated by its quantitative strategy or part of its increasingly important activist group.But its position, which it added to or part-sold 30 times on Friday, follows the purchase of a 6.66 per cent stake by RAB Capital, the London hedge fund manager. Philip Richards, RAB chief executive, has warned the government that if it allows Northern Rock shareholders to lose everything, the short-sellers will pick on a new bank in an attempt to panic depositors.Mark Tyndall, the Artemis chief executive, said managers of its pan-European and international portfolios had bought shares. He said the holding was not a large position for the group.Other investors declaring stakes under Takeover Panel rules included F&C Asset Management, which has 3.1 per cent; Resolution, the life assurer, which sold 2.5m shares to leave it with 3.4m, or 0.8 per cent; and Grantham, Mayo, Van Otterloo, the US fund manager, which owns slightly more than 1 per cent.

Northern Rock shares reached an all-time low of 132.1p, falling 47.1p amid speculation that the most likely option was a break-up or bid for the group by private equity houses JC Flowers and Cerberus.