Shares in Northern Rock, PLC slumped more than five per cent on Monday amid increasing speculation that the troubled mortgage lender will be nationalised, rather than sold off to a private investor.
Stepping up pressure on Northern Rock ahead of a key shareholder meeting on Tuesday, the government has lined up a former Lloyd's of London senior executive to run the bank in the event it is taken public.
Contingency plans advance
Analysts said the naming of Ron Sandler as provisional chairman suggested the government's contingency plans were well advanced and warned that if shareholders at Tuesday's meeting vote in favour of resolutions by two private equity firms to remove power from the board, nationalisation will almost certainly be the result.
If Britain's largest casualty of the global credit crisis is put under state control, shareholders will receive nothing or little for their shares.
Northern Rock shares closed 5.4 per cent lower at 82.5 pence (US$1.62; euro1.09) on Monday.
The stock has dropped more than 85 per cent since September 13, the day before Northern Rock revealed it had sought the emergency funds after it failed to raise funds in the wholesale money markets.
Sandler said on Saturday he would take charge of Northern Rock if it was nationalised, but said no decision had yet been taken.
Northern Rock said on Monday it continued to work on a private sale.
The mortgage lender has named Richard Branson's Virgin Money as its preferred buyer with the government's support. Virgin plans to take a 55 per cent stake in the business, rebranding it under its own banner.
It also remains in talks with private investment firm Olivant about a rival proposal that would see Olivant take a 15 per cent stake, putting its own management team in place to whip the bank back into shape.
However, there is increasing speculation that tough credit market conditions mean that neither of the two bidders will be able to raise enough funds to immediately repay the pound 25 billion (US$49.3 billion; euro33.5 billion) that Northern Rock has borrowed in emergency loans from the Bank of England.
- AP
