The board of Northern Rock needs to find a white knight urgently if there is to be any value left for shareholders, investment bankers said yesterday.

Lloyds TSB is understood to have come close to a deal, but it foundered over Bank of England concerns that it might cause greater shock to the financial system and concern that Lloyds wanted guarantees that funding would continue to be provided by the Bank.

Overseas banks, including Rabobank, of the Netherlands, Banco Santander, of Spain, which owns Abbey, and National Australia Bank, owner of Clydesdale, were mooted as being interested in either the whole bank or in some of its assets.

Crédit Agricole, which last year entered abortive talks with Alliance & Leicester, was mentioned as another candidate, as was Citigroup, of the United States.

While Northern Rock still has some attractive assets and a solid loan book, it is hamstrung by the paucity of its branch network, which would put some buyers off. It has just 76 shops — a tiny network for any incoming institution trying to build a deposit- taking foothold in the UK.

Rather than a bid for the entire bank, one option might be for a solid banking name to take a substantial minority stake, as Bank of America did last month with Countrywide, buying a 20 per cent stake in America’s biggest mortgage lender. Less risky still, the rescuer might extend a substantial loan to Northern Rock, convertible into shares at a future point when markets stabilise, possibly with an additional equity kicker.

One source of stabilising finance could be the vast state-backed vehicles run by the investment authorities of Far Eastern and Gulf states, which have shown interest in buying bank assets in the past — but they prefer the largest companies. “Northern Rock is on the brink of being too small,” one banker said. The recent experiences of Chinese and Singaporean groups, which are sitting on paper losses after buying into Barclays two months ago, may not have improved sentiment.

Northern Rock shares slumped by 31 per cent on Friday, yet that meant that the market still believed then that there was £1.8 billion of value left in the company.

The shares are expected to come under further pressure today if the runs of Friday and Saturday continue. The normal methods of valuing a bank — by multiples of profits or book value — have no meaning when depositors are clamouring to get their money out.

Although the bank is solvent and depositors will get their money back, that does not mean that potential buyers would necessarily value it as a going concern. Although open for business, Northern Rock will soon look like an institution in run-off. Thanks to the Bank of England credit line, it will carry on meeting its obligations as they fall due, but will struggle to do any new business.

On the plus side, it has a solid loan book. Its borrowers’ recent record on arrears and defaults has been better than most of its rivals. However, its policy of lending unsecured up to 25 per cent of the property value could lead to problems in future.

“Anyone wanting to buy this bank will insist on the utmost due diligence,” one investment banker said. That takes time, however, and time is not on Northern Rock’s side.

Northern Rock is estimated to have more than £30 billion of mortgage assets available to pledge to the Bank of England as security for its emergency credit lines. So, in theory, all the £24 billion of deposits could be paid out even if the Bank demands a margin for safety on top.

But the Bank and the Chancellor have other concerns. Daily queues at Northern Rock could, potentially, increase the risk of contagion. Regulators cannot afford the panic to spread to other financial institutions. One reason for the Financial Services Authority and the Bank blocking the possible takeover by Lloyds — one of the four or five institutions at the heart of the financial system regarded by regulators as sacrosanct — was fear that it could cause even more market unease than Northern Rock struggling alone.

The share price isn’t saying this yet, but the price of getting Northern Rock safely into the hands of a credible parent, one able to stem the panic, may be to give it away for a nominal sum.

The board and its advisers, Merrill Lynch and Hoare Govett, may try to resist this, but power has shifted from Newcastle to Threadneedle Street and Canary Wharf. The Bank of England and the FSA will regard that as a price worth paying if it helps to restore order to markets.

“This is all political now,” one banker said.

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