Successful bid may not rescue Rock jobs

8:40am Monday 4th February 2008

Comments (0)   Have your say »

THERE may still be job cuts at Northern Rock even if one of the bids to buy the bank, due to be submitted today, is successful.

Ahead of expected bids by Sir Richard Branson's Virgin group and investment group Olivant, the Treasury was reported to have sent a set of guidance notes to interested parties calling for the Government to be given a share in any financial recovery at the group.

According to reports in the Sunday Times, the notes also say the value of retail deposits that can be accepted by the group during the first three years may be capped.

The successful bidder could also be barred from raising money through the wholesale markets while a £24bn Government guarantee remains in place.

It is thought that the implication of the guidance notes is that Northern Rock's cost base would have to be scaled down rapidly, leading to job losses among its 6,500 workforce.

The so-called performance warrant, which could be converted into shares at a later date, would safeguard the Government against the successful bidder making large profits at the public expense.

The Treasury, which declined to comment on the Sunday Times report, has made no secret of its plans to share in any improvement in the group's fortunes.

Bids for the bank must be submitted today, with Sir Richard having already confirmed last week that his Virgin-led consortium intended to put forward an offer.

Investment firm Olivant is also expected to table a bid, although it has given no details.

A possible rescue bid by Northern Rock's management was said to be struggling to find the necessary funds.

Any potential deal must be approved by the Treasury, the Financial Services Authority and the Bank of England, which are likely to decide on a preferred bidder by the end of the month.

The Treasury has said that once a preferred bidder has been chosen, it will be put to Northern Rock's board, who will put it to shareholders.

However, if the bid is not accepted, the company would be taken into public ownership until a private sector solution is found.

Northern Rock owes about £24bn since it was forced to seek a Bank of England bail-out last September, sparking the first run on a UK bank in more than 140 years.

The company was on the brink of nationalisation until two weeks ago because potential private sector rescuers were struggling to raise funds.

That forced the Treasury into plans to split up the £24bn taxpayer debt into Governmentbacked bonds to sell to investors as a "back stop" to fund a privatesector solution.

Virgin plans to merge Northern Rock with its existing Virgin Money business, while Olivant, led by former Abbey chief executive Luqman Arnold, wants to install a management team immediately to turn the business around.