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Northern Rock rises on offer talk Virgin eyeing Northern Rock deal
(20 minutes later)
Shares in troubled lender Northern Rock have risen on a report that Sir Richard Branson's Virgin Group could make an offer for the business. Sir Richard Branson's Virgin Group is planning to take a majority stake in Northern Rock, the BBC has learned.
Northern Rock rose as much as 6% before settling 9 pence, or 3.5%, up at 267p in early trade on the London market. Under the plans, Northern Rock would keep its stock market listing but be rebranded as Virgin Money.
According to the Times newspaper Virgin is in talks with US and Middle Eastern investors about forming a consortium to take a controlling stake in the lender. According to BBC business editor Robert Peston, Sir Richard is putting together a consortium of investors to take a majority stake in the troubled bank.
Both Virgin and Northern Rock declined to comment. Both Virgin and Northern Rock declined to comment, but Robert Peston said Virgin would deliver an update soon.
If successful, Virgin would assume day-to-day management of the business under its Virgin Money brand, the Times added. Earlier on Friday, Northern Rock shares rose as much as 6% on rumours of a possible deal, but had settled back to stand up 1.25p at 259.25p in late morning trade.
The report also said the group could make an offer for Northern Rock before the weekend. Financial support
Rival bidders? Our business editor says that if the deal went ahead, the business would be run by Jayne-Anne Gadhia, a Virgin veteran who has been working with Sir Richard on developing a mortgage business for him.
However, he warns that any deal would be dependent on the government continuing to financially support Northern Rock.
"There are, of course, big obstacles, not least of which is that Northern Rock has now borrowed £13bn in emergency funds from the Bank of England - with the loans underwritten by the Treasury - and all of that would have to be refinanced by any successful bidder," he says.
Refinancing the loan in current market conditions would be "too difficult" for any buyer should Treasury support be withdrawn immediately on completion of the deal.
Bid battle?
However, any bid from Virgin could face opposition from a number of possible rival suitors.However, any bid from Virgin could face opposition from a number of possible rival suitors.
Reports have suggested US private equity group JC Flowers has set aside £15bn ($30.6bn) to buy the bank.Reports have suggested US private equity group JC Flowers has set aside £15bn ($30.6bn) to buy the bank.
Further speculation also suggests that JC Flowers and rival Cerberus are planning to break up the firm and buy its lucrative home loan book.Further speculation also suggests that JC Flowers and rival Cerberus are planning to break up the firm and buy its lucrative home loan book.
Meanwhile, hedge funds SRM Global and RAB Capital have taken stakes in the firm, fanning hopes that the business may be taken over as a going concern.Meanwhile, hedge funds SRM Global and RAB Capital have taken stakes in the firm, fanning hopes that the business may be taken over as a going concern.
Northern Rock ran into trouble last month when it was forced to call on the Bank of England for an emergency loan as it ran into funding problems as a result of the global credit crunch - which began in the US.Northern Rock ran into trouble last month when it was forced to call on the Bank of England for an emergency loan as it ran into funding problems as a result of the global credit crunch - which began in the US.
Northern Rock was particularly hard hit because it borrows an unusually large proportion of the money it lends to homebuyers from other banks.Northern Rock was particularly hard hit because it borrows an unusually large proportion of the money it lends to homebuyers from other banks.
Since the initial emergency loan Northern Rock has now borrowed a total of £13bn from the central bank.
The Virgin group pushed into the financial services sector in 1995 and now offers credit cards, insurance, savings and pensions.The Virgin group pushed into the financial services sector in 1995 and now offers credit cards, insurance, savings and pensions.