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UK Widens Search for Northern Rock Solution: Source

Reuters
Thursday, 10 Jan 2008 | 6:53 AM ET

Goldman Sachs, the U.S. investment bank advising the British government on the future of Northern Rock, is seeking to widen the range of options open to the government in its bid to rescue the stricken bank.

A source familiar with the matter told Reuters on Thursday that Goldman was now seeking investors in China and the Middle East to help fund a takeover.

Another source close to the matter said the investment bank was also considering a plan to convert the Bank of England's loans to Northern Rock into bonds for sale to investors.

Northern Rock is Britain's biggest casualty of the global credit squeeze and has borrowing around 26 billion pounds ($51 billion) from the Bank of England since it was forced to seek emergency funds in September.

The government's attempts to find a rescuer to pay back the loans and revive the business have mostly focused on two consortiums led by investment groups Virgin and Olivant.

But extended turbulence in credit markets has raised concerns that the suitors will struggle to finance a deal, leading the government to look at a range of options, including nationalization.

Finance Minister Alistair Darling reiterated to Parliament on Thursday that all options including nationalization were being considered, but that state-ownership would only be a temporary measure and that a private sector solution was still the government's preferred option.

Options

The money that Goldman is seeking from investors in China and the Middle East would be in addition to the 15 billion pounds ($29.3 billion) already committed by Deutsche Bank, Royal Bank of Scotland and Citigroup to help fund a rescue bid, one of the sources said.

The other source said that converting BoE loans into bonds was a possibility, but that no decision had been taken.

Goldman, Northern Rock and the Treasury declined to comment.

The government's options over Northern Rock are being complicated by some of the bank's shareholders, who have warned against a fire-sale of the business and are holding an extraordinary general meeting (EGM) on Jan. 15.

An announcement about the financing or the preferred bidders could be made before then, one of the sources said.

Darling told Parliament that shareholder rights were important, but that the British taxpayer also had a huge interest in Northern Rock.

Citigroup and Blackstone , the U.S. private equity firm with a significant presence in China, are advising Northern Rock.

Northern Rock shares were up 7.6 percent at 96 pence.

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