Sir Richard Branson has announced a high-powered lineup for his attempt to take control of Northern Rock that includes the world’s largest insurer and an activist hedge fund.

The consortium, led by Sir Richard’s Virgin Group, submitted a proposal yesterday to the board of the troubled bank in which it outlined plans to rebrand the company as Virgin Money. The group of five investors are likely to inject an immediate £1 billion into Northern Rock in return for a stake of 50 per cent or more in the bank.

Banks including Citigroup are expected to provide the remaining £20 billion to £30 billion required to pay off Northern Rock’s £13 billion borrowing from the Bank of England, an estimated £14 billion needed to refinance wholesale borrowings coming due over the next 12 months, plus cash to enable the bank to continue selling new mortgages.

The consortium hopes that a recovery in Northern Rock’s customer deposits, plus a loosening in the credit markets, will enable it to raise further funding to cover the cost of new business.

Virgin has teamed up with the insurer AIG; Wilbur Ross, the US investor that specialises in distressed assets; Toscafund, one of the hedge funds that forced the break-up of ABN Amro, and Hong Kong’s First Eastern Investment Group. Other investors from the Middle East are likely to be named as soon as details of their participation are hammered out.

Sir George Mathewson, the former chief executive and chairman of Royal Bank of Scotland (RBS), is advising the consortium. Sir George is the chairman of Toscafund, the £3 billion fund set up seven years ago by the respected investor Martin Hughes.

The inclusion of AIG in the consortium is key. Additional funding required to keep Northern Rock in business could come from the establishment of more special investment vehicles, such as the bank’s existing Granite vehicle, which would issue mortgage-backed securities. AIG’s financial products business, which specialises in providing credit guarantees, could offer insurance to buyers of Northern Rock’s securities, increasing their attractiveness.

Northern Rock has not responded to the consortium’s approach. The sale of the bank is being run by Merrill Lynch and Citigroup. The consortium is being advised by Greenhill & Co and Quayle Munro Group, a boutique mergers and acquisitions advisory house run by Peter Norris, the former chief executive of Barings’ investment banking business, who is a long-time adviser to the Virgin Group.

In a statement Virgin said that it intended to retain Northern Rock’s stock market listing and inject a “substantial cash sum” in return for new shares – discounted to the 265p per share price at the time of the announcement – that would enable the consortium to take control of the business without having to mount a takeover bid. Northern Rock shares closed up 15¼p at 273¼p For the bid to succeed Northern Rock’s shareholders would have to agree to “whitewash” a Takeover Code rule that requires a bidder to launch a formal takeover offer. Virgin is thought to believe that although investors would see the value of their shareholdings reduced by the issuance of new equity, the offer is preferable to a complete loss if no rival bid emerges.

Analysts at Keefe, Bruyette & Woods said shareholders were likely to see their stakes diluted by more than 30 per cent but added that the offer could help to flush out other bidders.

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