Buyers are eyeing up Northern Rock. Photo / Reuters
Shareholders in ailing British bank Northern Rock could be left with nothing and the Bank of England could still be funding the lender in three years, according to a memo by bankers handling the bank's sale.
A briefing memorandum sent to potential buyers of Northern Rock by its
advisers showed it could still owe as much as £5.9 billion ($16 billion) to the Bank of England in 2010.
The memo was posted on FT.com's Alphaville site.
Northern Rock said the briefing memo was issued under a confidentiality agreement and it declined to comment.
Northern Rock is being advised by Merrill Lynch, Citigroup and Blackstone.
It is referred to by the codename "Blackbird" in the memo, and the attempt to find a buyer is termed "Project Wing".
The memo outlines three options for Northern Rock, including a "preferred option" of selling all of the company. The other two options involve the sale of assets and the banking infrastructure, leaving shareholders invested in a rump company.
The aim would be to run down the balance sheet, repay creditors, and then "if appropriate" the return of "residual value" to shareholders, the memo said.
It said it would encourage alternative offers for assets and liabilities to the three options it outlined.
Northern Rock's share price has fallen 76 per cent since September 13, the day before the bank obtained emergency loans from the Bank of England.
Advisers have set an informal deadline of Friday for approaches to be made.
The former head of UK bank Abbey and veteran troubleshooter Luqman Arnold is preparing a move through his investment company Olivant, which would take a minority stake in Northern Rock and put a new team in charge.
Two others to confirm an interest are US buyout firm JC Flowers and a consortium led by Richard Branson's Virgin Group. Wall Street powerhouse Cerberus is also interested, sources have said.
- REUTERS
