Former Abbey chief plans Northern Rock rescue

Investors have reacted positively to a rescue proposal for Northern Rock as shares in the bank rose 6.8% in early trading today.

Luqman Arnold, the banking expert and City stalwart and former Abbey chief executive, has launched a proposal to rescue Northern Rock as shares in rival UK banks remained under pressure on concerns that major banks in the UK will follow its US counterparts with massive write-offs.

Mr Arnold’s investment group, Olivant, was set up in 2006 by Mr Arnold and Alan Morgan, a partner at McKinsey, the US consultancy group.

According to sources, Olivant has the support of a dozen blue-chip UK institutional investors and wealthy families.

In a statement, Olivant said the proposal would involve the immediate introduction into Northern Rock of a core team of Olivant’s experienced principals, led by its chairman, Luqman Arnold, to work intensively alongside its existing Board and management, together with a subscription of a minority stake in Northern Rock, intended to ensure Olivant’s alignment with the Board and shareholders.

Olivant would subscribe for new shares in Northern Rock up to a 20% stake.

Other suitors expressing an interest in Northern Rock include private-equity groups, JC Flowers, Cerberus, Blackstone and Apollo. A consortium led by Virgin boss, Richard Branson, has also joined a growing list of those expressing an interest in the bank.

However, one of the major concerns for any buyer of Northern Rock is funding for the £100 billion loan portfolio. The bank has already borrowed nearly £13 billion from the Bank of England when it had to seek emergency funding.

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