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Northern Rock's future continues to hang in the balance

10 January 2008 / by Joy Tibbs
Reports that Northern Rock is to be nationalised have not yet been confirmed, however many experts are advising shareholders to sell stocks before it is too late. Despite this, there have also been reports that a Chinese or Middle Eastern buyer may be pursued as the search for a takeover deal becomes increasingly frantic.

Goldman Sachs is due to report on the possible options for the struggling lender's future today at a meeting involving Northern Rock's board of directors and Government ministers. Some optimism remains following a Sunday Times report last weekend which suggested that Goldman was close to resolving a £15 billion financing package for the bank.

And the Government has allegedly given the investment bank the go-ahead to widen its search for 'sovereign wealth funds' in an attempt to clinch a deal before next month, when the Bank of England's £25 billion loan to Northern Rock has to be repaid under EU law. According to The Guardian, Middle Eastern state-owned investors could be the answer to Northern Rock's financial turmoil.

Meanwhile, Goldman is still in talks with a consortium led by Sir Richard Branson's Virgin Group, which has a number of arms, including Virgin Media and a rival consortium headed by Olivant. However, it appears that the global credit crunch could prevent either from raising the necessary funds needed to complete a takeover deal.

The bank's ongoing struggle has had serious repercussions for the UK's global financial sector, according to Goldman Sachs chief economist, Jim O'Neill. "The 'Northern Rock' factor has badly dented the UK's reputation for being the world's pre-eminent financial centre," he said.

The Chancellor has reportedly resolved to make a final decision about the bank's future by mid February. The Government is said to be desperate to avoid nationalisation, which is likely to cause major uproar among shareholders.

An extraordinary general meeting will be held on January 15 at which heated debates over hedge funds are likely to ensue. Northern Rock employees are set to hold a protest outside the building while the meeting is in progress to encourage shareholders to consider their views during discussions.

© Fair Investment Company Ltd