Northern Rock's shareholders voted to re-elect the board but curtailed some of its powers Tuesday, sending the bank's shares tumbling.
Two thirds of shareholders voted to prevent the bank’s ability to issue new shares over 5 million pounds ($9.9 million) without approval, which was enough to carry the motion.
Northern Rock's board almost had its asset-selling rights stripped too, as a majority of shareholders voted for the hedge funds proposals. However, they did not reach the 75 percent threshold set for the motion to be passed, leaving control of assets in the hands of the board.
Sanderson said he is "still reasonably confident" that a private-sector solution can be found for the battered mortgage lender, while speaking at the extraordinary general meeting in Newcastle.
All rescue options for the bank will rely on government funding for the next 2-3 years, Sanderson added.
Strategy Due Next Month
Earlier Sanderson said a "substantial amount of work" was needed to achieve a private sale, as he promised to deliver a reviewed strategy for the bank by mid-February.
The stock remained over 15 percent lower after details of the vote emerged.
The board of Northern Rock had warned against restricting its powers in what it said was "a time when prompt, decisive action may be required to deliver an optimum solution for shareholders and other stakeholders (including creditors)."
The measures were put forward by hedge funds RAB Special Situations Master Fund Limited and SRM Global Master Fund Limited Partnership, worried that the bank's management could be put under pressure by the government, which has bailed out the bank, to sell it too cheaply. The two funds own a combined 18 percent stake in the bank.
Both SRM and RAB said during that meeting that they would support the board's appointment resolutions and a private-sector solution.
The Virgin Group, led by British entrepreneur Richard Branson, and investment company Olivant, headed by former Abbey National boss Luqman Arnold, have made bids for the mortgage lender.
"We've not committed to any one of the proposals yet. We have indicated that the Olivant proposal seemed to leave something on the table for shareholders," Philip Richards, CEO at RAB Capital, told "European Closing Bell."
"I am mandated to do the best deal I can for existing shareholders," Richards added.
The Bank of England has extended loans of around 26 billion pounds ($51 billion) to keep the bank afloat since September, when worried depositors lined up outside branches across the UK to withdraw funds in the first bank run in Britain in more than a century.
Fears that the government will nationalize the bank have hammered Northern Rock's shares, which are less than a tenth of their value at the beginning of 2007.
Some shareholders criticized the Bank of England for not intervening earlier. "There were mistakes in the past," John Wood, from SRM, told "European Closing Bell," adding that the shareholders will work with the board to find the best solution.
UK Chancellor of the Exchequer Alistair Darling said in London a private sale would be the preferred option for Northern Rock, but reiterated that all options remained open, including nationalization.
Some shareholders praised the government for not rushing into "precipitous action" but said political factors play an increasingly important role in the bank's future.
"Unfortunately, government ministers at the moment, the political climate being as it is, they're brought under pressure to do things, to take decisions," Roger Lawson, from the UK Shareholders Association, told "Squawk Box Europe."
Nationalization was not the way to go, partly because of EU rules restricting government aid to private companies, but some sort of state support was needed, as in the current market conditions the private sector cannot find the resources to pay back the government loans, shareholders said.
"I believe there is a private sector solution with injection of shareholder money," Robin Ashby, from the Northern Rock Small Shareholders Association, told "Worldwide Exchange." "I believe that in the long term this business can be very profitable."
- Reuters contributed to this report.