A high-profile City executive who helped to disentangle the fallout from the collapsed hedge fund Long Term Capital Management (LTCM) in the 1990s is assembling a rescue plan for Northern Rock.

Luqman Arnold, who tried to revive Abbey National as chief executive but instead sold it to Banco Santander, is working on a bid for Northern Rock, the mortgage lender, with Olivant, the investment firm, which would not involve a break-up or sale and would retain the group’s battered brand name.

Mr Arnold, who is being advised by Ken Costa, the Lazard banker, is thought to have won the support of several key Northern Rock shareholders. Bryan Sanderson, the new chairman, is also thought to view the proposals favourably.

The plan is believed to involve taking an equity stake of up to 20 per cent and making Mr Arnold interim chief executive, in place of Adam Applegarth.

The principle underlying the plan is that there is nothing fundamentally wrong with Northern Rock’s business, aside from the fact that the bank fell victim to a systemic liquidity crunch.

The plan is “all about restoring operational and financial confidence” in the business and is not believed to include any remuneration or fee for Mr Arnold’s group. The group’s rewards would come from a recovery in Northern Rock’s share price.

Further details are expected to emerge in the coming days ahead of a bidding deadline set for Friday by Northern Rock’s advisers. Mr Arnold is believed to have discussed the proposal with the Bank of England, the FSA and other regulators.

At UBS, Mr Arnold helped to deal with the aftermath of the notorious Long Term Capital Management debacle in 1998, in which the bank lost more than $730 million.

His handling of that crisis as chief operating officer at Warburg Dillon Read, later renamed UBS Warburg, set him up for a subsequent ascent to the post of group chief financial officer and later president of the executive board. His tenure at the top was short-lived, though, as he was toppled later by Peter Wuffli.

In Britain, Mr Arnold is best known for helping Abbey to regroup after it slipped into the red five years ago. He helped to stabilise the company, although he did not get far in coming up with a new growth strategy, before it was bought by Banco Santander, the Spanish bank. Mr Arnold’s group is thought to include Alan Morgan, a former senior partner in McKinsey, and Brian Keane, formerly of Deutsche Bank. They will have to fight off competition from a consortium led by Sir Richard Branson’s Virgin Group and Cerberus and JC Flowers, the private equity firms.

A spokeswoman for Northern Rock said: “There is a formal process and all participants are invited and encouraged to make their bids.”

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