NORTHERN Rock could be subject to a takeover attempt from a City group being set up to buy state-owned banking assets, it was revealed yesterday.

The nationalised Newcastle lender, which the Government has said it wants to sell back to the private sector, is said to be one of the main targets for the City-led venture, which is to become reality within the coming months.

Lord Levene, chairman of the Lloyd’s of London insurance market, and Sir David Walker, who headed a review into bank boardroom practices, are backing the launch of a venture that would look to bid for taxpayer-backed assets.

The project aims to create a banking player to rival the established groups as the UK’s sector continues to emerge from the financial crisis.

The two corporate heavyweights are planning to list an acquisition vehicle on the stock market and have already got investment banks and advisers on board, sources close to the venture confirmed.

Institutional investors, including Aviva, Invesco and F&C Asset Management, are said to have pledged billions of pounds to the deal in principle.

Yesterday, it was said that UK Financial Investments, which oversees Governmentowned banking assets, and the City regulator, have been briefed on the proposals, and details are expected to be announced within days.

The new venture will set its sights on retail banking assets only, such as Northern Rock, which is hoping to return its “good bank”, Northern Rock plc, to the private sector.

The lender also has Northern Rock Asset Management, known as the “bad bank”, which holds its toxic debts.

It is also thought the City venture is looking at parts of Lloyds Banking Group and Royal Bank of Scotland, which are being put up for sale in return for State bailout money received during the financial crisis.

Lord Levene, whose minimum three-year term at Lloyd’s ends later this year, is lined up as chairman of the banking proposition.

He has a highly-regarded career behind him in the private and public sector, including a stint as Lord Mayor of London and as a former adviser to the Chancellor.

Sir David is expected to become a non-executive director.

He is an ex-Bank of England director and former deputy chairman for the then Lloyds Bank, who was recently called upon by the Government to come up with a new code of best practice for the City.