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J.C. Flowers Says It Is in Talks to Buy Northern Rock

U.S. private equity firm J.C. Flowers said Friday that it is in talks with Northern Rock about a possible takeover bid for the troubled mortgage lender.

Flowers said it would install a high-profile management team that includes naming Paul Myners, the former chairman of the retailer Marks & Spencer, as chairman if it is successful.

Richard Branson's Virgin Group has also expressed interest in bidding for Northern Rock and other possible private equity buyers have been mentioned as possible bidders.

Flowers' announcement comes as concerns grow about the level of losses being sustained by Northern Rock, Britain's biggest casualty of the global credit crunch.

Myners, who has a string of other executive and non-executive positions, heads a panel in charge of implementing the British government's plans for a national pension savings program.

He would be joined in the Northern Rock management team, Flowers said, by Richard Pym, who retired in July as chief executive of Alliance & Leicester, as executive deputy chairman, and Hugh Scott-Barrett, the former chief financial officer of Dutch bank ABN Amro Holdings, to fill the same role at Northern Rock.

Troubled Rock

Northern Rock ran into trouble last month because of its heavy reliance on short-term money markets for funding. Its subsequent profit warning and appeal to the Bank of England for an emergency loan led to the first run on a British bank for almost a century.

The rush was only stemmed days later when the government stepped in to guarantee deposits of Northern Rock savers.

Analysts said an inspection of the Bank of England's accounts showed that Northern Rock's borrowing is likely to have exceeded 20 billion pounds ($41.1 billion). That figure appears in the "other assets" category of the central bank's accounts, which includes any funds the bank issues as "lender of last resort."

"As well as losing wholesale funding, Northern Rock has suffered a larger withdrawal by retail customers than the guesses of several billion pounds circulating in the market," said Simon Ward, an economist at investment management firm New Star.

British Treasury chief Alistair Darling has warned Northern Rock that it has only "a matter of weeks and months" to sort out its future.

The existing loan facility from the central bank comes to an end in February, and while Darling said that was not a "drop dead date" for the bank, he told lawmakers on Thursday that it could not carry on indefinitely.

Three-Month Deadline

The mortgage lender effectively has three months to agree to a deal with a buyer, during with the government will allow the bank to draw credit against all its assets.

Northern Rock is still also in discussions with a consortium led by Virgin Group, which submitted a nonbinding indication of interest to the bank earlier this month.

Virgin proposed an equity injection that would see the struggling mortgage lender kept intact and rebranded as Virgin Money.

Other possible bidders which have figured in speculation are Apollo Management, Blackstone Group, Lone Star and Cerberus Capital Management.

Northern Rock shares were up 0.8 percent at 189 pence ($3.88) on the London Stock Exchange. The stock has dropped around 70 percent since Sept. 13, the day before it revealed it had sought the Bank of England funding.