Citigroup to rescue Northern Rock

by Gill Montia

Story link: Citigroup to rescue Northern Rock

Citigroup, the global financial conglomerate, is reported to be planning to rescue Northern Rock.

Details of an agreement are expected to be made public in the coming days and are rumoured to involve an investment of up to £10 billion by Citigroup.

Such a move would put Northern Rock, which is the UK’s fifth-largest mortgage lender, on a more stable footing and enable it to raise funds in the wholesale markets.

Northern Rock has been borrowing from the Bank of England since mid-September, at a penal rate of around 7%. Since that time, no commercial lenders have been supporting it.

Last week Citigroup was appointed as an adviser on the sale of Northern Rock and has also been seen as a possible provider of funds for a takeover of the business.

It has now emerged that Citigroup is also prepared to offer between £5 billion and £10 billion directly to Northern Rock.

The funding is likely to be linked to the three-month inter-bank, or Libor, lending rate. The Libor rate has been falling and stood at 6.24% at close of trading on Friday of last week.

Analysts estimate that Northern Rock needs to refinance £14 billion in loans in the second half of this year and up to £30 billion over the next 12 months.