LONDON Britain is considering plans to sell off nationalized lender Northern Rock although no formal discussions are taking place with potential buyers, people familiar with the matter said on Monday.
A sale before the end of the year was "not impossible" but would be hard to achieve given the lack of visibility on the length of the recession, a banking industry source said.
The Sunday Times newspaper said Northern Rock would be split in two, with its most toxic loans held in a "bad bank" to remain in government hands and the remainder sold off by the end of the year.
"The government would love to exit Northern Rock before the election, an early sale would be driven by politics as much as business rationale," the industry source told Reuters.
The next UK general election must take place no later than June 3, 2010.
The Sunday Times, which did not cite sources, said advisers at Credit Suisse had started to draw up plans for the disposal.
Virgin Money, National Australia Bank, Santander and private equity firms Blackstone and Towerbrook had been sounded out about a deal, the paper said.
A Northern Rock spokesman said the bank's objective was to return to the private sector and a sale of the bank "was just one option" in the process. "We have given no timescale for the return," he said.
A flotation of Northern Rock would be a "less sensible" outcome than a trade sale, an analyst said.
"It's a pipedream to float all of Northern Rock this year," he said. "There is a chance the government could float the 'good bank' this year, although having taken all the pain of the recapitalization, it would be better to wait and float it in a bull market."
All of the reported potential suitors either declined to comment or could not be immediately reached. A spokesman for the UK Treasury declined to comment.
Virgin, which looked at buying Northern Rock before it was nationalized in February 2008, remains interested in entering the banking sector and continues to look at opportunities, people familiar with the matter said.
Northern Rock was the first British casualty of the credit crunch, when it was hit by a freezing of wholesale money markets in September 2007, depriving it of much of its funding and forcing it to seek emergency help from the Bank of England.
(Reporting by Victoria Howley; Editing by Greg Mahlich and Dan Lalor)