Rock suitor threatens ultimatum

By Robert Peston Business Editor, BBC News

The investment group led by Virgin is still keen to control the Rock

Olivant is threatening to abandon its attempted rescue of Northern Rock.

It has written to Northern Rock accusing it of frustrating its attempts to negotiate a massive line of credit with Citigroup and Deutsche Bank.

Olivant, led by the former boss of Abbey National Luqman Arnold, also wants its team to take over the Rock's management with immediate effect.

Unless the demands are met, Olivant has said that it will walk away from the rescue attempt.

The Rock's board has been stunned by the ultimatum.

It felt it was providing significant information to Olivant and was trying to meet all its demands.

Serious concern

Olivant's frustration is a serious concern for both the Rock and for the Treasury - which is desperate to find an orderly solution to the Rock's financial difficulties that would lead to the gradual repayment of more than £25bn of taxpayer-backed loans to the bank.

If Olivant pulls out, there would be just one potential bidder for the Rock, a consortium led by Sir Richard Branson and Virgin.

However, it too is not finding it easy to raise a jumbo loan of £11bn to repay some of the taxpayer-backed loan.

Also, many shareholders will be furious if the Olivant plan collapses. It had received support from hedge funds and investment institutions controlling almost 25% of the Rock's shares.

In particular, Olivant is supported by two powerful hedge funds, RAB Capital and SRM Global.

The Treasury has been working on a plan to nationalise the Rock, in the event that a commercial solution to its problems proves impossible to find.