Northern Rock seeks potential buyers

Tentative steps towards returning bailed-out banks to private ownership were taken today when Northern Rock began the process of seeking out potential bidders. The City expects a price tag of £1.4bn to be a starting point for any bids. Almost three years since it was nationalised by the Labour government, Northern Rock is working with UK Financial Investments (UKFI), which looks after the taxpayer stakes in the bailed-out banks, to appoint corporate financiers who might secure a sale of the Newcastle-based lender. The government, which refused to comment directly today, will need to decide whether to relax conditions placed on the former chief executive of Northern Rock, Gary Hoffman, which bar him bidding for the lender until November this year. Hoffman stunned UKFI and ministers by quitting in November to join the acquisition-hungry investment vehicle NBNK, which is thought to be interested in the Rock and the 600 branches that Lloyds Banking Group must sell off to appease the European Union. As a condition of hiring Hoffman, NBNK was banned from bidding for the lender for 12 months – although by excluding the vehicle from the bidding, City sources believe the government is excluding one of the most obvious suitors. Other bidders might be Sir Richard Branson's Virgin Money, while a stock market flotation could also be considered. The Labour MP Chuka Umunna, who sits on the Treasury select committee, called on the government to consider the remutualisation of Northern Rock. "The coalition agreement said the government would bring forward proposals to foster diversity in financial services, create a more competitive banking industry and that it would promote mutuals. If the government is serious about promoting mutuals, what better place to start than with the remutualisation of Northern Rock?" UKFI, which needs to sell stakes in Royal Bank of Scotland and Lloyds Banking Group as well, urged caution about an imminent deal for the Rock. "UKFI invites expressions of interest from corporate finance advisers to work with both UKFI and Northern Rock plc in the evaluation of the strategic options for the company. There is no presumption at this stage that any particular option will be pursued and no time-frame has yet been set for the return of the company to private ownership," UKFI said. Northern Rock plc, the outfit being readied for sale, is the so-called "good bank", which has been stripped of the taxpayer loan used to prop up the bank in 2007 and is funded by retail deposits. It made a loss of £142m in the first half of 2010. It has been split off from the "bad bank", containing troubled loans and £22bn of government money, which has been united with Bradford & Bingley's mortgages to create a holding company known as UK Asset Resolution. The earliest any deal might be agreed will be the second quarter of this year, as advisers are unlikely to be appointed until the end of next month. As the government injected £1.4bn into the "good bank" last year, this might be seen as a benchmark for potential bidders, although the sale is being held in a tough environment for retail banks. UKFI has posted an invitation to tender to corporate finance advisers across the City on its website today. Interested parties will have to complete a pre-qualification questionnaire and sign a non-disclosure agreement, and those selected will be sent invitations to tender on 19 January. UKFI will expect responses by 31 January. After Hoffman left, the chairman, Ron Sandler, was forced to take responsibility for day-to-day control of the Rock, returning to the role he took on when he was parachuted into the bank after it was nationalised in February 2008.