UPDATE 1-NBNK vies with Virgin Money for Northern Rock
* NBNK submitted Northern Rock bid proposal -source
* NBNK looking to combine N.Rock with Lloyds branches -source
* NBNK competing with Virgin Money for Northern Rock (Adds further detail, background)
LONDON, Oct 26 (Reuters) - New British banking venture NBNK has submitted a bid proposal for nationalised British bank Northern Rock, two sources with knowledge of the matter told Reuters, putting NBNK in competition with Virgin Money.
"They bid today," said one source, who declined to provide further details on NBNK's proposal.
NBNK is also bidding for 630 bank branches that Lloyds has been ordered to dispose of by regulators as payback for being rescued by the UK government during the credit crisis, and one source said the Lloyds assets remained NBNK's main priority.
NBNK would look to combine Northern Rock with those branches to form a new challenger bank to take on the "Big Four" of Barclays , HSBC and part-nationalised lenders Royal Bank of Scotland and Lloyds , which dominate British banking.
"The priority target is and has always been the Lloyds branches. Northern Rock would bring with it a really good infrastructure, deposits and fantastic staff and would get them up to 6 percent of the personal current accounts market," added the source.
DIFFICULT SALES PROCESSES
NBNK's bid comes a day after Virgin Money, part of billionaire Richard Branson's Virgin Group, submitted its own second-round bid for Northern Rock.
The Northern Rock auction and Lloyds branch sale have looming end-of-year deadlines approaching, and both deals have encountered a certain amount of difficulty due to financial market turmoil.
The global economic slowdown and market volatility has hit the valuation of both auctions, meaning that the sales might not fetch as much money as once hoped for.
Lloyds itself has kept open the option of spinning off or floating its branches if it fails to agree a sale.
NBNK has been competing with Co-Operative Financial Services and Sun Capital for the Lloyds branches, although NBNK has so far been the only one to submit a second-round bid.
Northern Rock was fully nationalised three years ago after suffering a run on its deposits during the credit crunch. British Finance Minister George Osborne said in June that he aimed to find a buyer for it this year.
Aggressive lending practices caused the bank's near collapse in 2007 when credit markets seized up, and Britain had to prop up Northern Rock with 1.4 billion pounds ($2.2 billion) of taxpayers' money during the crisis.
The Northern Rock sale is being handled by Britain's UKFI organisation, which was set up to manage the state's holdings in banks bailed out during the crisis, including Lloyds and Royal Bank of Scotland, in which Britain finished up with respective stakes of 40 and 83 percent.
A source said UKFI was looking for second-round bids for Northern Rock by the end of this week. ($1 = 0.628 British Pounds) (Editing by Myles Neligan and Will Waterman)