November 5, 2007

Blackstone invites Northern Rock bidders as withdrawals reach £14bn

by Gill Montia

Story link: Blackstone invites Northern Rock bidders as withdrawals reach £14bn

It has been reported that Northern Rock savers have withdrawn around £14 billion since the bank’s liquidity crisis first hit the headlines, in September.

The figure is believed to have been made public during due diligence by three possible bidders for the mortgage bank.

Northern Rock deposits were estimated at £24 billion in early September, and the withdrawals could amount to 60% of this total.

Almost to £3 billion was withdrawn during the three-day run on the bank in mid-September and the extent of further withdrawals is surprising given that the Government intervened and pledged to guarantee savings.

The scale of the problem can only underline the lack of confidence in Northern Rock, which has so far borrowed £22.8 billion from the Bank of England.

Some analysts believe that this could rise to close to £30 billion by the turn of the year and the Chancellor of the Exchequer has already made it clear that the Government’s support for the bank is finite.

So far three bidders are known to be conducting due diligence: JC Flowers and Cerberus (both private equity firms) and a consortium led by Virgin Group.

However, in the past few days, Blackstone, which is acting as an adviser to the bank, is reported to have sent detailed sales memoranda to up to 50 potential bidders.

These are rumoured to include private-equity groups, building societies and banks in the UK, Europe, China and India.

Blackstone is promoting both a sale of the entire bank and the possibility of selling off Northern Rock’s mortgage book, which is estimated to be worth £109 billion.

The memorandum apparently details plans to restructure Northern Rock into a series of viable businesses.

Blackstone was appointed to advise the bank’s board in mid-November, alongside Merrill Lynch and Citigroup.