Full coverage of Northern Rock

An attempt to organise a takeover of Northern Rock was underway last night as regulators, government and bank officials sought to rescue Britain’s fifth largest mortgage lender before the panic among its customers leaves it beyond salvage.

The crisis-hit lender, which was thrown a lifeline by the Bank of England last week, was braced for a further stampede this morning by nervous savers desperate to withdraw their money in the worst run on a British bank for decades.

Last night, however, the Bank of England boosted hopes that a leading banking group might be persuaded to ride to Northern Rock’s rescue.

The Bank made clear that the loan facility which it has given to Northern Rock – allowing it to continue to remain afloat despite a cash crunch that has left it short of funds – will remain available to any institution that buys the lender.

The unexpected move by the Bank could help to pave the way for a takeover that will save Northern Rock and prevent a further escalation of the crisis.

The siege of Northern Rock’s branches by thousands of its 1.4 million customers nationwide was expected to continue this morning despite new pleas for calm led by Alistair Darling, the Chancellor, and Sir Callum McCarthy, chairman of the Financial Services Authority (FSA).

Between £1.5 billion and £2 billion was pulled out of Northern Rock on Friday and Saturday after news broke of the Bank of England’s intervention. Online withdrawals continued over the weekend in the first known instance of an electronic bank run.

Experts gave warning that the bank may ultimately see withdrawals of as much as £12 billion – half of its total deposits – as customers scramble to secure their funds. The rush will pile pressure on the bank’s management, as well as officials at the Treasury, Bank of England and FSA, to find a quick solution.

David Cameron raised the stakes yesterday after the Chancellor had defended the handling of Northern Rock’s plight by the Government and the Bank of England. The Conservative leader used the crisis to attack the Government’s economic record and blamed Gordon Brown for fostering a culture of reckless lending. Mr Cameron will follow up his attack in a speech today at the offices of KPMG, the audit, tax and financial advisers, in Central London.

Last night’s surprise statement from the Bank on the status of its loan guarantee lifeline will boost hopes that a rescue may be easier to complete than many in the City had believed. “We have agreed that any bidder would be able to take over this facility for any expired term that it left,” the Bank said.

Until last night, the hardline stance taken by Mervyn King, Governor of the Bank of England, over any move that might be seen as bailing out institutions that have been reckless had convinced key City players that Northern Rock’s lifeline would disappear as soon as it was taken over. Confusion was fuelled by the news that a potential eleventh-hour takeover by Lloyds TSB had foundered after the Bank of England said that it would not provide interim support for Northern Rock.

A leading City source said that Northern Rock had not been able to enter talks because it was assumed that the Bank would remove its support as soon as a takeover was agreed. The source added: “They [Northern Rock] have had lots of calls from all over the world . . . But before they can do anything, they have to sort out the inheritability of the credit line.”

Last night the Bank insisted that it had never ruled out a transfer of the guarantees that it has given to Northern Rock to a potential buyer, and said that its statement was intended only to clarify the situation. Lloyds TSB remains a favourite candidate to lead a takeover although last night the bank refused to comment.

Official sources played down weekend reports that Northern Rock might be broken up and its mortgage accounts shared out among other institutions. Speculation that the Newcastle-based bank could quickly become insolvent if its situation further deteriorates was also played down. “If we believed that Northern Rock was not solvent, we would not have allowed it to remain open for business,” Sir Callum said.

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