Deutsche Bank May Pull Backing of Northern Rock Bid

Deutsche Bank is threatening to abandon plans to back Virgin Group's bid for Northern Rock, according to the Sunday Telegraph newspaper.

Northern Rock last week named Richard Branson's Virgin as its preferred bidder, as Virgin said it expected to repay Northern Rock's emergency loans from the Bank of England within three years.

Northern Rock is estimated to have borrowed up to 29 billion pounds ($60 billion) from the Bank of England (BoE) since it was forced to seek emergency loans from the central bank in mid-September when it was hit by a funding crisis.

Deutsche is one of three banks talking to Virgin about providing 15 billion pounds to repay the BoE.

Sources familiar with the matter have said in the past week that financing has yet to be finalised.

But the newspaper's sources said Deutsche now had "serious issues" with Virgin's takeover proposals, and was concerned that Virgin had issued "disinformation" on its level of nvolvement.

A Deutsche spokesman said the bank was continuing to talk to Virgin, as well as the BoE, Treasury and Financial Services Authority.

A Virgin spokesman said: "The consortium is working with its bankers this weekend and early next week to hammer out final details of a financial package."

J.C. Flowers, the U.S. buyout group founded by former Goldman Sachs partner Chris Flowers, raised the stakes on Friday by offering to improve its bid but also warning it would walk away if the government wouldn't talk with it.

The Telegraph also said Northern Rock's biggest shareholder, Jon Wood of SRM Global, was preparing a rescue plan, based around a rights issue that he would underwrite himself.

The Observer newspaper said Jonathan Bloomer, former boss of UK insurance giant Prudential, had been picked to head a bid by U.S. private equity house Cerberus.

Olivant, an investment group led by Luqman Arnold, former head of Abbey National, is widely expected to formalise an offer this week.