LONDON (Reuters) - U.S. buyout firm JC Flowers submitted an offer for Northern Rock NRK.L, according to a person familiar with the situation, as shares in the stricken British bank tumbled on fears that any offers will be low.
JC Flowers’ proposal includes an offer to Northern Rock shareholders at a “nominal value”, the person told Reuters.
Northern Rock shares fell as much as 42 percent earlier on Tuesday due to mounting concern that shareholders will not get much value from their holdings, but by 1140 GMT the shares had pared some of their losses and were down 10.8 percent at 93 pence, valuing the bank at 390 million pounds ($801 million).
JC Flowers’ proposal includes the repayment of 15 billion pounds in emergency loans to the Bank of England, and the repayment of further borrowing estimated at 10 billion pounds over time, probably by the end of 2010, the person said.
It would take the business private and inject at least 1 billion pounds in new investment to support the bank’s balance sheet and underwrite a new business plan. It would keep the Northern Rock name and presence in the northeast of England, he said.
Britain’s Treasury said on Monday it would be partial to bids that minimized government involvement, and would be willing to extend help for potential buyers beyond a sale or past February as long as it satisfied European Union law and the government’s own fiscal rules.
The government has also said its guarantee would be maintained as long as market conditions persisted. The Treasury said on Tuesday there would be a minimum of three months notice before lifting any guarantee.
None of the offers that had been received by Monday were for all the bank and all valued the equity at “materially below” its value at the end of last week.
The Newcastle-based bank is Britain’s most prominent casualty of the global credit market turmoil, which has also weighed on other mortgage lenders, such as Alliance & Leicester ALLL.L and Bradford & Bingley BB.L.
Northern Rock’s advisers expect to attract interest from eight to 10 parties, banking sources say.
The Times said U.S. private equity firm Cerberus had dropped plans to put forward a bid for Northern Rock, dealing another blow to the embattled bank.
“I firmly agree that a sale is the wrong thing. The situation is a shambles and probably managing the business for a turnaround rather than a sale right now is the right way forward, given the bids on the table are probably below 1 pound (per share),” said Mike Trippitt, analyst at Oriel Securities.
“The problem right now is with the level of retail deposits that have walked out the door and the emergency funding, it becomes less and less attractive,” he added.
Northern Rock is estimated to have borrowed about 25 billion pounds from the Bank of England since it was forced to turn to it for funds in mid-September after being unable to raise finances in wholesale markets.
“No one knows which way it is going to go. No one knows whether it is going to be broken up, whether it is going to be privatized, whether it is going to be taken over,” said Mark Priest, a trader at TradIndex.
“Uncertainties in these conditions are just going to make this stock worse and worse and worse. We also have UBS and Swiss Re in Switzerland going limit down today. This banking sector is walking on a knife edge.”
Shares in midcap British buy-to-let lender Paragon (PARA.L) tumbled 40 percent after it said it may need to raise 280 million pounds from shareholders due to problems raising finances.