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Northern Rock Extends Retail Deposit Guarantee

Troubled U.K. mortgage lender Northern Rock announced Tuesday a deal with British financial authorities to extend guarantees for retail deposits that will enable it to explore a possible sale through the beginning of next year.

Northern Rock also confirmed that it has appointed Citi to join Merrill Lynch as an advisor on its strategic options, but did not confirm a report that Citi will provide $20 billion in financing.

Shares of the company rose more than 20% on the London Stock Exchange.

"If my mother were to ask me where she should put her money at the moment, I would say Northern Rock," Numis Securities analyst James Hamilton told Reuters.

"What (prospective) buyers will want to know, is how long these arrangements will last and whether they will continue (after a deal)."

Guarantee arrangements with the Bank of England to safeguard retail deposits will be extended to cover all new deposits made after Sept. 19, including future interest payments, Northern Rock said.

"These arrangements will remain in place during the current instability in the financial markets," the company said.

The agreement allows Northern Rock to explore a possible sale, a process that will last through 2008, according to the company.

Separately, U.S. buyout firm Lone Star has joined the list of potential bidders for Northern Rock, according to the Financial Times.

The firm joins U.S. private equity companies JC Flowers, Apollo and Blackstone in mulling a bid for the British bank.

Lone Star's interest is thought to be in the early stage, the Financial Times reported, unlike JC Flowers who has had access to Northern Rock's financial data and is understood to be conducting due diligence.

Apollo and Blackstone are yet to request to see Northern Rock's books or management.