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Northern Rock’s fate to be decided this weekend

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by Kay Mitchell

It is believed that a decision for the rescue of crisis-torn Northern Rock could be made as early as this weekend.

Sources close to the discussions between Sir Richard Branson’s Virgin Group and officials of the Treasury, the Bank of England and the Financial Services Authority have indicated that talks are approaching the final stages.

Rumours indicate that increasing pressure from the European Commission, together with wanting to pacify MPs on their return to Parliament next week could push Chancellor Alistair Darling into making an announcement, perhaps as early as Monday.

It was revealed earlier this week that the Virgin consortium is the front-runner. A source close to Northern Rock said Virgin are ahead currently but they would need to improve their offer before the Government is ready to do a deal.

This announcement was disappointing for the shareholders of Northern Rock. Northern Rock’s largest shareholders, hedge funds RAB Capital and SRM Global said they would consider legal action if the Treasury accepts Virgin’s offer for the bank as the Virgin proposal will significantly dilute existing investors‘ shares. They are in full support of the stand-alone solution, led by Paul Thompson.

The government is negotiating with Virgin to get a better deal for the taxpayer after Northern Rock’s management team was told its offer for the bank did not come up to scratch. Revised proposals are expected to be submitted in the next few days resulting in a decision thereafter.

While Virgin believes its offer is the best choice, the Treasury is still threatening to nationalise the bank, however badly that would hit the credibility of the Government.

Northern Rock became the UK’s biggest casualty of the global credit crunch and has borrowed around £26 billion from the Bank of England since its crisis erupted last September.

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News posted: February 15, 2008

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