Sir Richard Branson’s Virgin Group has joined forces with the world's biggest insurer and a renowned hedge fund to prepare a takeover bid for Northern Rock, the stricken mortgage bank.

After an exclusive report in The Times today, Virgin officially notified the City that it had formed a consortium that features AIG Financial Products, part of the worldwide insurance empire formerly run by Hank Greenberg.

Toscafund, the low-key profiile hedge fund set up by Martin Hughes and chaired by Sir George Mathewson, is a fellow member of the group, which also contains vulture fund WL Ross and Hong Kong based investment group First Eastern.

Tosca was set up by Martin Hughes and is chaired by Sir George Mathewson, the former chairman of the Royal Bank of Scotland.

Shares in the Rock, which had rebounded after the report in The Times, surged 7 per cent, up 19.5p to 277.5p, as the consortium promised to rebrand the Tyneside lender and retain its listing on the London Stock Exchange.

Sir Richard said: "I believe that if we are successful we'll be able to create an exciting new banking alternative for everyone in the UK."

The arrival of the consortium provides a huge boost to the Rock's chances of remaining independent, and whole.

Until now, of the four interested parties holding talks to buy the bank, only JC Flowers, the investment group, has said it will keep the business intact.

Central to the consortium's proposal is the transfer of Virgin Money, its financial services network, to the bank in exchange for equity. The bank will then be rebranded as a Branson vehicle.

Virgin Money, which offers credit cards and insurance, has 12 million customers.

“They [Virgin] are taking it very seriously and they are credible,” one person with knowledge of the negotiations told The Times last night.

Virgin is the latest suitor to emerge for Northern Rock, which went into financial meltdown after it was forced to seek emergency funds from the Bank of England last month.

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