Branson's Virgin plans Northern Rock rescue

Virgin Group founder Richard Branson gestures as he arrives at the Virgin Unite's ''Rock The Kasbah'' benefit reception in Hollywood, California July 2, 2007. Virgin Group has submitted a rescue plan for British bank Northern Rock including the injection of ''substantial new equity'', it said on Friday.

LONDON (Reuters) - British billionaire Richard Branson wants to rescue ailing mortgage bank Northern Rock NRK.L by leading a consortium that would inject a "substantial cash sum" and stabilize the bank's finances, his company said.

A consortium led by Virgin Group, the planes, trains and mobile phone group controlled by Branson, said under its proposal "a substantial cash sum will be injected ... for new equity to be issued at a discount to the current share price".

Virgin, confirming comments made earlier on Friday by a source familiar with the matter, said Northern Rock would be renamed Virgin Money and would rebuild a deposit base to drive a more sustainable funding structure.

"It is the consortium's intention to maintain Northern Rock's listing, to retain the business in its entirety, to add to it and to grow it in the future, rather than seeking a break up or a partial solution," Virgin said in a statement.

The consortium would want a majority shareholding, a source familiar with the matter told Reuters.

The consortium includes U.S. insurance group AIG (AIG.N), buyout firm WL Ross, investment group Toscafund and Hong Kong- based investment group First Eastern.

It would be advised by George Mathewson, who masterminded a series of major acquisitions while chief executive and chairman of Royal Bank of Scotland (RBS.L), including the takeover of NatWest, Britain's biggest-ever bank deal.

Northern Rock shares jumped as much as 10 percent after the consortium became the first company to declare an interest in the bank, which has been engulfed in crisis after being offered emergency funding by the Bank of England a month ago.

The shares closed up 5.9 percent at 273.25 pence, valuing the bank at just over 1.1 billion pounds ($2.24 billion).

"So far it's the most credible attempt to acquire the company," said Mamoun Tazi, analyst at MF Global, citing the well respected Virgin brand and the backing of a "who's who of financial services institutions" behind the proposal.

"On the other hand, there's a lot of uncertainty about the financial proposal. The deal will be coming at a discount to the existing share price and shareholders will have to make some concessions," Tazi added.

"NEW BANKING ALTERNATIVE"

Branson, one of the world's highest-profile businessmen and estimated to be Britain's 11th richest person with a 3.1 billion pound fortune, pushed Virgin into financial services in 1995.

Virgin Money now offers credit cards, insurance, savings and pensions, and also products in Australia and South Africa.

But it no longer directly provides mortgages, after selling out of a successful Virgin One mortgage joint venture with Royal Bank of Scotland in 2001, three years after launching.

Jayne-Anne Gadhia, who helped set up Virgin One and moved to RBS but returned to Virgin in March, would be chief executive of the combined Virgin Money/Northern Rock business.

Gadhia told Sky News she expected to get a response to the proposal by next week.

Branson is the face of all of the Virgin business empire, becoming a household name because of his maverick approach and headline-grabbing stunts. But one of his boldest moves -- the creation of Virgin Media (VMED.O) by merging his mobile phone group with cable TV firm NTL in February -- has struggled due to an ongoing row with satellite firm and rival BSkyB (BSY.L).

"I believe if we're successful we'll be able to create an exciting new banking alternative for everyone in the UK," Branson said in a statement.

He said the proposal should safeguard most of Northern Rock's 6,000 jobs and create more in the future.

Newcastle-based Northern Rock suffered the first run on a major UK bank for more than 140 years after its funding crisis surfaced last month. It is estimated to have borrowed almost 13 billion pounds from the Bank of England in the last four weeks at a punitive interest rate.

Analysts now widely expect it to be taken over. Its advisers Citigroup (C.N) and Merrill Lynch MER.N requested indications of interest to be made by 1600 BST today, sources said.

U.S. buyout firms Cerberus CBS.UL and JC Flowers are considering moves on the bank, according to other sources familiar with the matter. Newspapers have also named Blackstone (BX.N), Lone Star and Apollo as possible suitors.

Northern Rock shares have rallied more than 60 percent this week as optimism has grown that the bank would receive a bid, but is still down two-thirds in the last month.

The Virgin consortium is being advised by Greenhill & Co. and New Boathouse Capital, part of Quayle Munro.

For a Newsmaker on Richard Branson click on nL12404947.

(additional reporting by Mathieu Robbins and Miyoung Kim)