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LONDON - Britain has set a two-week deadline for a private-sector rescue of Northern Rock that would allow the stricken bank's £25 billion (NZ$65.42 million) emergency funding to be converted to government-guaranteed bonds to help smooth a deal.
The financing package will tie the Government to Northern Rock,
Britain's biggest casualty of the global credit crunch, for years to come.
But it also increases the prospect of a private-sector takeover, which would avoid a politically damaging nationalisation for Prime Minister Gordon Brown, who has seen his popularity slump in opinion polls in recent weeks.
The financing package will be available to the three front-runners for a private-sector deal - Richard Branson's Virgin Group, a rival consortium led by investment firm Olivant, and an in-house solution under new Northern Rock management.
It could also tempt back into the fray other potential suitors such as private equity firms J.C. Flowers or Cerberus, although the tight deadline means they need to make a quick decision.
The finance ministry said in a statement it wants suitors to submit detailed proposals by February 4.
The bank will be temporarily nationalised if none of the offers is acceptable, it said, but it warned shareholders they would be likely to get little or nothing under such a move.
The Government said it would require "an appropriate share in potential upside equity returns" under a takeover after criticism that taxpayers would be guaranteeing billions of pounds while a successful bidder reaps most of the reward.
Under the proposed structure, Northern Rock would sell a pool of its assets to a financing vehicle, which would fund the purchase through bonds sold on to private investors and backed by government guarantees.
The deal will need to comply with European Union rules on state aid for private companies and the Government has until March 17 to come up with a full solution to go before the European Commission.
Northern Rock is estimated to owe the Bank of England about £24 billion since seeking emergency funds in mid-September after being unable to raise cash in financial markets.
News of the emergency loans prompted the first run on the deposits of a major British bank for over 140 years.
Savers withdrawing cash from Northern Rock contributed to record savings inflows to Britain's building societies last year. They attracted £16.1 billion, almost double that of a year before, the industry said.
The Northern Rock crisis has contributed to a slump in Prime Minister Gordon Brown's poll ratings at the end of last year.
A poll last month put the opposition Conservatives 12 points ahead of Labour.
- Reuters
