Cerberus, the US private equity firm, has dropped plans to table a bid for Northern Rock, dealing another blow for the beleaguered bank, it emerged last night.

Talks with interested bidders for Northern Rock are likely to go on until February, sources said yesterday, as the troubled bank admitted that the bids it had received so far were too low to satisfy shareholders.

Cerberus was one of four parties thought to be considering serious offers for the bank but it is believed to have been put off by continued turmoil in global financial markets. Its interest is also thought to have been affected by credit-related losses at GMAC, the former financing arm of General Motors that is now 51 per cent owned by Cerberus. GMAC was expected to part-fund a Cerberus offer for Northern Rock.

Advisers to Northern Rock are likely to continue discussions with potential suitors until the Government’s deadline for the cut-off of emergency funding to the bank, sources said. To conclude a deal any quicker could result in accusations that they had not explored every option for extracting value from Northern Rock, they said.

The bank is expected to settle on what it feels is the best offer, then talk to leading shareholders before recommending a bid. “It doesn’t matter what the board recommends - if shareholders think they’ll get a better offer elsewhere, they’ll hold out for it,” a source close to the company said. “There’s a long road to go.”

The Government said yesterday that the line of credit that the Bank of England had extended to Northern Rock could not continue beyond February, because it would then contravene European rules on state aid.

Sources close to the sale were sceptical yesterday that the Chancellor would cut off the bank because a sudden withdrawal of finance would force Northern Rock into a fire sale of its assets. The Government, which has first call on some of the assets as collateral for its emergency funding, would lose money as a result, they said. “In practice, everyone knows that they’re going to have to extend until things have picked up,” a source said.

The Bank of England demanded that Northern Rock provide assets with a greater value than the £24 billion that it had lent the bank. It is thought that the Bank is keeping track of the value of the assets on a daily basis to ensure that market changes do not erode the quality of its collateral.

Northern Rock said yesterday that it had received two types of proposal after last Friday’s deadline for expressions of interest: to invest in the company through an injection of assets and new capital; or to buy parts of the business or its assets.

In a statement to the market yesterday, Northern Rock said that the value of the existing equity implied by the offers was “materially below” the company’s market capitalisation of £559 million at the end of last Friday.

Implosion countdown

Feb 7 First hint of sub-prime crisis emerges as HSBC announces that it has dismissed its head of North American operations, after its bad debt rose to $6.8 billion

Aug 9 Northern Rock’s funding problems grow

Aug 13 Northern Rock informs the FSA; begins seeking cash elsewhere

Aug 16 Matt Ridley, chairman, discusses loan with Bank of England; puts the Newcastle-based bank up for sale

Aug 30 Board members asked if they would tender resignations

Sept 13 Northern Rock applies to the Bank of England for emergency support. Bank of England holds discussions with the Treasury and the FSA to agree a rescue package

Sept 14,15 Savers withdraw money in what is the first run on a British bank in 141 years

Sept 17 Alistair Darling, guarantees accounts

Sept 20 Mervyn King, Governor of the Bank of England, denies he failed to be sufficiently alert to the dangers in the financial system that all but destroyed Rock

Sept 21 Rock confirms that it has borrowed £3 billion from the Bank of England. By November this has risen to £24 billion

Oct 9 FSA tells Parliament that Rock had not been subjected to a thorough supervisory healthcheck for 18 months when it imploded

Oct 11 Mr Darling tells MPs that he will introduce legislation in the new year that will guarantee the savings and deposits in all banks and building society accounts

Oct 19 Mr Ridley resigns

Nov 6 Mr King discloses that Darling blocked a Lloyds TSB rescue and new financial facts before he publicly intervened to protect savers and borrowers

Nov 16 rescue proposals submitted which are materially below Rock’s market value

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