At least two financial institutions looked at rescuing Northern Rock in recent days but walked away because of the turbulence in financial markets, The Times has learnt.

The advisers Merrill Lynch and Hoare Govett are continuing to sound out potential white knights for the Tyneside lender, according to people familiar with the matter.

The potential buyers are thought to have reassured themselves that there was no black hole in the accounts but were nevertheless put off by the general turmoil in markets.

Adam Applegarth, chief executive of Northern Rock, declined to comment on whether the bank had an independent future. “All our focus has been on managing our way through this,” he said.

However, it is thought that both the bank’s board and the Financial Services Authority (FSA), the main regulator, would look favourably on an offer from an institution with credibility and balance-sheet strength.

Analysts said yesterday that finding a white knight was vital to Northern Rock’s survival. John-Paul Crutchley, of Merrill, said: “We see a strategic partnership or full takeout of the business as the only viable alternative if Northern Rock is to return to writing significant new business volumes.”

However, most of the biggest UK banks - including Barclays, HBOS, HSBC and Lloyds TSB – are thought to be uninterested in staging a rescue bid, certainly until current market turmoil eases. That leaves foreign banks – including Bank of America, ING, of the Netherlands, and Crédit Agricole, of France – as potential buyers.

One drawback for would-be buyers is that Northern Rock is due to finance £2.7 billion of commercial paper and other securities that come due in the next six months. Another is that it is already highly cost-efficient and has only a small branch network, and so offers few easy synergies.

Officials at the FSA have been persuaded that Northern Rock is still solvent and that its lender-of-last-resort funding from the Bank of England need be only temporary.

More than £5 billion was wiped off the value of some of the most popular mortgage banks yesterday in the wake of the announcement that Northern Rock had been forced to ask for an unlimited line of credit from the Bank.

About £900 million was wiped from Northern Rock’s value as its shares slumped 31 per cent to 438p. A buyer might need £1.8 billion, its present market value.

Three of the Rock’s competitors – Bradford & Bingley, Alliance & Leicester and Paragon – rushed out announcements designed to allay shareholders’ worries and distance themselves from Northern Rock’s business model.

Meanwhile, the FSA and the British Bankers’ Association reassured Northern Rock’s customers that their personal accounts were safe after savers flocked to Northern Rock’s branches to withdraw their cash.

Mr Applegarth admitted that the bank’s strategy of sourcing finance mainly from the wholesale markets would have to change. He said: “Is the model flawed looking foward? Of course it is. Is it flawed looking back? I think the answer is no because of the markets that we were operating in prior to August 9 [when liquidity suddenly dried up across major Western markets].”

Asked whether he planned to resign, he said: “I hugely love this company. I’d love to be part of the rebuilding of it.”

Northern Rock asked the Bank of England for funding, which it has not yet used, after other banks and investors refused to lend it money in the wholesale market.

Mr Applegarth said that in recent weeks Northern Rock had been funding its mortgage lending by using cash in deposit accounts and by selling some commercial paper in America. “Everyone’s hoarding cash, no one’s lending to each other,” he said. “Across every type of instrument at the moment is a logjam.”

He said he first approached the Bank of England for lender-of-last-resort funding at the end of last week. “We had to prove to them that we have a viable business model and that this is a short-term liquidity problem and that they’re simply helping you through the problem,” he said. “We’ve clearly been talking as we always do with our regulator very closely. It’s not simply picking up the phone, it was an escalation of existing conversations.”

The bank said that it still expected to make profits of £500 million to £540 million this year, steering analysts down from previous consensus forecasts of £647 million.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive