Financial Market

With the news this week that Virgin are the front runners in the bid to take over troubled bank Northern Rock, Financial Market looks at how the group will have to alter its tabled bid in order to cement any proposed deal.

The government has told the Virgin Group, spear headed by Richard Branson, that if it is to take over the Northern Rock the terms of its existing deal will have to be improved. The current terms are said to be more geared towards new investors than the long term standing of the mortgage specialist..

With the news that the Virgin consortiums terms are not to the liking of the government, the management-led bid to salvage the bank could still fall through. Nationalisation of the bank is still very much on the table without a better deal for taxpayers according to the treasury.

The government has stated that in return for its risk in helping the troubled bank out it wants increased exposure to any upside.

Northern Rock still owes the Bank of England £24 billion. If a successful take over offer is not made, an alternative course of action that has also been proposed involves the splitting of Northern Rocks debt into government guaranteed bonds and selling them off to investors.

Investors were further concerned when shares in Northern Rock fell as much as 8% upon news that the rescue packages tabled were not meeting government expectations, but this is a far cry from the disappointment of the zero return investors are expected to get should the bank be taken into public ownership.

Northern Rocks biggest single share holder SRM Global has also increased their stake in the company to 11.5%. As an opponent to the take over bid by Virgin, SRM would see Virgin take a majority shareholding in Northern Rock should the take over proposal be successful.