Hedge funds set to talk to Northern Rock: paper

LONDON (Reuters) - The British Treasury has given two U.S. hedge funds permission to start takeover talks with stricken British mortgage lender Northern Rock Plc NRK.L, the Sunday Telegraph newspaper reported.

The Treasury was not immediately available for comment.

The paper said JC Flowers and Cerberus met John Kingman, head of the Treasury's enterprise and growth unit, last week to discuss their separate proposals.

The government has effective control of Northern Rock because of emergency funding being supplied by the Bank of England.

The Sunday Telegraph said the hedge funds would meet Northern Rock's adviser, Merrill Lynch, in coming days.

Separately, the Independent on Sunday newspaper reported Northern Rock had collected more than 100 million pounds ($203 million) in penalty fees from savers who took money out of accounts during the run on the bank earlier this month.

Northern Rock says on its Web site it will repay those penalty fees to savers who reinvest the funds in the same account by October 5.