Goldman Sachs is examining turning into bonds some of the £25bn owed by Northern Rock to the Bank of England, as a possible solution to the crisis surrounding the refinancing of the stricken bank. Financial Times

The US investment bank, asked by the Treasury before Christmas to look at the options, has this week been reporting back with a list of potential financing structures to help a sale of the Newcastle-based bank.

The sale appears to have reached an impasse over the issue of financing.

The two bidders for Northern Rock – Olivant and the consortium led by Virgin Group – are struggling to find backing from commercial banks for a takeover. The bonds option could also allow Northern Rock to continue as an independent entity.

Goldman has suggested that part of the Bank loan can be converted into bonds, which can then be sold to investors.

However, Northern Rock, which is dependent on government support for its credit rating, might use that guarantee to issue bonds. It could then decide to lay off some of the potential risk with a specialist insurer.