Northern Rock and its advisers have been meeting major banks this week to help line up possible financing options for the embattled bank.
The bank, which is being advised by Blackstone, Merrill Lynch and Citigroup, is looking at a sale of the business, a possible restructuring or a hybrid solution including both of those. The amount of financing required will depend on which option is chosen.
Northern Rock has met at least three banks this week to discuss financing which could be used for possible solutions. This move is also designed to prevent individual bidders from exclusively securing major banks as backers. Citigroup has already made it clear it is able to provide financing as part of a consortium.
Northern Rock’s advisers are trying to drum up a more competitive auction and lure dozens more potential buyers.
They have sent a detailed information memorandum to up to 50 bidders – including banks from Europe and Asia and building societies.
A potential break-up could see Northern Rock being split into creditworthy assets, which could be sold off, and other assets – which could be restructured.
JC Flowers, Cerberus and a Virgin Group consortium have each submitted proposals but these are in the early stages.
The Newcastle bank is being propped up by around £20bn of cash from the Bank of England. However around £10bn of deposits have been withdrawn since the crisis started in mid September and the bank has also experienced a sharp reduction in new mortgage lending.
Bruce Packard, analyst at Pali International, questioned whether any of the bidders would proceed without the government providing financial backing after any takeover is completed.
He wrote: “We believe that the three potential bidders have looked at Northern Rock and the £113bn total liabilities, and none of them are likely to bid unless the government keeps the funding guarantee in place.
“Replacing management, changing the bank’s name or even breaking it up will not change the £113bn of total liabilities. Although some of the bidders may want to buy Northern Rock as a going concern, it looks as if the franchise value is now worthless.”
The bank has not made a statement on its trading performance since September although it is due to update the market next month.
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