US buyout firm JC Flowers has reportedly submitted an offer for Northern Rock, according to a source close to the situation, as shares in the stricken British bank tumbled on fears that any offers will be low.
JC Flowers' proposal includes an offer to Northern Rock shareholders at a 'nominal value', the person told Reuters.
Northern Rock shares fell as much as 42% earlier on Tuesday due to mounting concern that shareholders will not get much value from their holdings.
However, the shares were well off their lows by the close, down 6.9% at 97 pence and valuing the bank at about £400m.
JC Flowers' proposal includes the repayment of £15 billion in emergency loans to the Bank of England, and the repayment of further borrowing estimated at £10 billion over time, probably by the end of 2010, the source said.
JC Flowers would take the business private and inject at least £1 billion in new investment to support the bank's balance sheet and underwrite a new business plan. It would keep the Northern Rock name and presence in the northeast of England, he said.
Advisers to Northern Rock are auctioning the bank and said yesterday that they had received some interest, but none of the offers were for all the bank and all valued the equity at 'materially below' its value at the end of last week.
The advisers expect to attract interest from eight to 10 parties, banking sources say. The Times said US private equity firm Cerberus had dropped plans to table a bid for Northern Rock, dealing another blow to the embattled bank.
The struggling lender has borrowed an estimated £25.3 billion in emergency Bank of England funds.
British finance minister Alistair Darling yesterday defended his government's handling of the Northern Rock crisis and pledged to give the embattled bank breathing space to assess its options.
Last Friday, two potential buyers - a consortium fronted by Richard Branson's Virgin Group and investment firm Olivant Advisors - revealed that they had submitted bid proposals to Northern Rock.
