New suitor 'preparing Rock bid'

A third potential suitor for the Northern Rock is looking at the beleaguered bank's books ahead of a possible takeover offer, a report says.

Private equity company Cerberus is putting together a bid for the bank, the Sunday Times has reported.

It is being backed by GMAC, the finance firm half owned by General Motors.

A consortium led by Richard Branson's Virgin Group and the US private equity firm JC Flowers are also keen on buying Northern Rock.

Treasury preference

The report says that GMAC, in which Cerberus owns a 51% stake, would play a pivotal role in a move for the bank.

Formed 88 years ago to offer finance for people buying cars, it evolved into a lender of other loans as well as a bank and insurance company.

Observers say that its involvement would make a Cerberus offer appeal more to the Treasury, which is keen to see the Northern Rock sold in a trade deal to another bank, rather than to a firm interested only in the financial aspects of the deal.

The Virgin-led consortium, also featuring US insurance company AIG and the Tosca hedge fund, has offered to buy a majority stake in the bank and inject "hundreds of millions of pounds" of money in exchange for taking control and rebranding the business as Virgin Money.

And last week JC Flowers stepped up its efforts to take control of the bank - putting together a management team in case a deal happens.

It includes former Marks and Spencer chairman Paul Myners as chairman of the bank and former Alliance and Leicester chief executive Richard Pym.

There have been reports that JC Flowers has secured £15bn to buy Northern Rock, the first major UK bank to be brought to its knees by the seizures in the credit markets which followed the crisis affecting US sub-prime home loans.

But according to The Sunday Telegraph, it wants the government to indemnify the bank against any litigation from shareholders, before it agrees to a deal.

Northern Rock's shares are still more than two-thirds below their price before the bank was forced to go to the Bank of England for emergency funding on 14 September.

Repayment commitment

Any future owner of Northern Rock will need to pay back hefty loans to the Bank of England which it has borrowed in emergency funds.

Over the past week, the bank is likely to have borrowed a further £4.65bn, according to the latest Bank of England data.

The figure appeared in the "other assets" category of the Bank of England's accounts, which includes any funds the Bank issues as "lender of last resort".

Analysts believe it is highly likely that this money has gone to Northern Rock.

This would indicate that Northern Rock's borrowings are now likely to total in excess of £20bn.