Banking on finding solution

Evening Chronicle (Newcastle, England), Dec 4, 2007

TREASURY bosses are drawing up contingency plans to pay Northern Rock's depositors their money if the bank goes under.

The plan would see the Bank of England buying Northern Rock's deposits and swiftly paying the balances back to customers.

Treasury bosses say if Northern Rock's shareholders or its suitors make unreasonable demands on taxpayers' money, the mortgage lender could be forced into administration.

Both the Treasury and the Bank of England stress they want a successful acquisition of the Rock, but are aware they need a credible back-up plan in case negotiations over a sale fall through.

Northern Rock is already believed to have drawn up plans in case the bid process comes unstuck, but it is focusing its efforts on pushing through a sale.

Virgin Group's preferred-bidder status for Northern Rock will come under pressure today as JC Flowers begins a series of meetings with the beleaguered bank's board.

The American private equity group is hoping to gain preferred bidder status alongside or instead of Sir Richard Branson, pictured, after submitting a revised proposal at the end of last week.

The company will flesh out details at a series of meetings with Northern Rock, its advisers and Treasury officials.

JC Flowers' proposal includes a concession in which the Bank of England's outstanding debt would be treated on a par with the debt the Rock is borrowing from a string of commercial banks, as opposed to ranking below them.