Potential buyers set sights on the Rock; Books examined as business chief hits out

Evening Chronicle (Newcastle, England), Sept 27, 2007

Byline: By NICK WHITTEN Industrial Reporter

NORTHERN Rock has opened its books to a veteran Wall Street dealmaker.

US buyout firm JC Flowers is poring over the bank's books after tabling a takeover proposal for the mortgage lender.

The interested party is owned by Chris Flowers, a former Goldman Sachs banker - the firm appointed by the Bank of England to advise them on the current Rock crisis.

Mr Flowers' offer is believed to involve taking full control and keeping the bank together.

Northern Rock chiefs revealed yesterday they had received "a number of approaches" from would-be bidders and are in talks with some of the potential buyers.

The Rock's share price has been lited by takeover talk, going up 12% yesterday to 182p and a further rise this morning to 195p.

Other potential bidders, who include a private equity group led by US firm Cerberus, plan to break the Rock up and divide the assets between them.

Experts say a bid for the bank outright would be less complicated than a break-up but it is too early to say which might be more attractive because no price has yet been proposed.

Alex Potter, an analyst at Collins Stewart, said: "They have confirmed they are in talks but it's very tentative.

"If you haven't even come to discussions on price, you are a long way from completion."

Mr Flowers has experience of taking over troubled banks and returning them to profit.

In 2000, with former Lazard banker Tim Collins, he bought the bankrupt Long Term Credit Bank - now Shinsei Bank - from the Japanese government for pounds 600m.

In the space of little more than five years, investors made 12 times their original investment.

Meanwhile the boss of the Confederation of British Industry (CBI) said the run on the Northern Rock has made Britain look like a "banana republic".

At the CBI North East annual dinner in Newcastle last night, director-general Richard Lambert attacked the system, set up when the Bank of England was granted its independence in 1997.

Mr Lambert said the problems at Northern Rock, after it was forced to turn to the Bank of England as lender of last resort two weeks ago, meant the system had failed its "first big test".

He said the run on Northern Rock was what you would expect in a "banana republic", adding "that one should have happened in a mature and prosperous country like the UK is almost unimaginable".

Despite his criticisms, Mr Lambert did emphasise that the board of Northern Rock had to take "full responsibility" for the bank's business model, which left it more dependent on money markets for its finance than other institutions.

"Other financial institutions around the world have been buffeted around in this rough weather. Few of them have been holed."

Yesterday Newcastle based housebuilder Barratt Developments said the sale of new homes has dropped by up to 10% in the week after the Rock crisis in what is usually its key selling season.

Barratt, the UK's second largest housebuilder, reported full-year figures, with underlying pre-tax profits up by 16% to pounds 454m.