At least two of the bidders for Northern Rock believe the stricken mortgage lender will need a substantial injection of new cash to shore up its capital base and allow it to carry on making new loans. Financial Times, The Times, Daily Telegraph
Both Christopher Flowers, the US private equity investor, and Sir Richard Branson’s Virgin Group have pledged to invest about £1bn of new cash as part of their plans to take control of the business.
The proposed cash injection is in addition to financing facilities that would partially repay the Bank of England’s £20bn loan.
However, shareholders said that any new cash required could be raised from existing investors. 'If the company wants equity, then it can come to the shareholders and we will provide it through a rights issue,' said Jon Wood of SRM Global, the hedge fund that has built a large stake in the bank.
Shares in Northern Rock continued to fall as it emerged that shareholders would receive only a 'nominal' amount under JC Flowers’ proposal, which was formally submitted yesterday. At least six other bidders – including Cerberus, the US buy-out group – have also expressed an interest. The shares closed at 97p, down 7.2p.