Investment group Olivant has withdrawn from the race to rescue crisis-hit British bank Northern Rock in a shock late decision, which came just ahead of a British government deadline. This leaves two bidders in the race.
Olivant, headed by former Abbey chief executive Luqman Arnold, said it had failed to come up with an offer that could satisfy its investment needs, the British government's financing terms and the interests of Northern Rock stakeholders.
A consortium led by Richard Branson's Virgin Group has confirmed that it has submitted a bid, which would include a plan to inject £1.25 billion of new capital into Northern Rock.
Under plans by the Northern Rock board, the former boss of insurer Resolution, Paul Thompson, would become head of the restructured bank and at least £500m in new equity would be pumped in.
The British government, which wants a private sector buyer, will then have to decide which is the best option for the bank's future as well as for British taxpayers. It is not clear how long the government will take to make a decision, which could rest with Prime Minister Gordon Brown.
Northern Rock was loaned £25 billion sterling by the Bank of England in September after the onset of the global credit crisis caused its business model to collapse.
The British government is guaranteeing that amount of financing will be available to all bidders, meaning the bank's fortunes will be tied to the state for several years.
The Sunday Times newspaper reported that bidders have been told they will have to accept a warrant that allows the government to share in future profit growth.
The winning bidder will also be expected to carry out a low-risk strategy for the group. Rival banks will be watching for any unfair advantage that could be gained from the government backing, for example if Northern Rock raised money from capital markets while still benefiting from the cash.
