Shares in Northern Rock slumped by a fifth yesterday as hopes receded of a rescue bid that would leave existing shareholders with anything but modest residual value.

The company said that all the rescue proposals received so far valued the bank at “materially below” the 132.6p at which the share price closed the day on Friday. It also revealed that none of the possible rescuers was proposing a full takeover bid. Instead, they were either offering to acquire parts of the bank piecemeal or to inject fresh cash or assets in return for newly issued shares.

The share price slid 28.4p to a low of 104.2p, which values the bank at only £439 million. Eight months ago the shares were £12.50, valuing the company at more than £5 billion. Hundreds of thousands of small investors, as well as institutional investors such as pension funds, are now nursing large losses from Northern Rock.

Much of the share price slide yesterday came after the Chancellor’s Commons remarks, which offered little encouragement for shareholders. The beleaguered bank said that the value to shareholders from any of the proposals was “highly uncertain” and would depend on many outside factors, including overall credit market conditions.

The coolly worded update added: “Northern Rock emphasises that there can be no certainty that discussions with interested parties will lead to an investment in or offer for the company or for all or any part of its business or that any such offer will be implemented.”

Alistair Darling, the Chancellor, left shareholders in no doubt that they were a long way down the pecking order, with taxpayers, depositors and financial stability his main concerns.

More than half a dozen institutions are thought to have expressed an interest in Northern Rock, but fewer have spelt out their ideas in any detail.

Sir Richard Branson has proposed injecting £1.2 billion in cash and his Virgin Money business in return for a newly issued majority stake, possibly of about 75 per cent of the enlarged company. Luqman Arnold, the former chief executive of Abbey National, also wants to inject cash into Northern Rock, though a smaller amount, in return for a minority stake, of perhaps 20 per cent.

Both bidders would expect to harness large loans from the private sector to repay the Bank of England. Sir Richard would rename the business Virgin, while Mr Arnold would attempt to breathe new life into the tarnished Northern Rock name.

Private equity groups including J C Flowers have expressed an interest, but it was not clear whether they had submitted formal proposals. Mr Darling told the Commons that more proposals were expected this week, despite the original deadline of last Friday.

One potential bidder, Cerberus Capital, pulled out last night.

ING, the Dutch bank best known in Britain for its ING Direct savings business, has also been mooted as a potential rescuer. ING bought Barings for £1 after it was brought down by the rogue trader Nick Leeson.

Most potential bidders would like to see stronger guidance from the Government on how quickly the outstanding loans to the Bank of England and Treasury, estimated at between £20 billion and £24 billion, would need to be paid back.

Although £13 billion of the debt is more than fully secured by strongly rated mortgage assets, as much as £11 billion more is less solidly secured on the residual assets of the bank.

The Government has also started to accept interest in kind from Northern Rock, accepting subordinated loan notes instead of cash for a small part of the interest owed. These notes rank low down the creditors’ pecking order in the event of a winding up.

The Treasury said that no one should assume that the current Bank of England facilities would be extended beyond February.

“However, the authorities [the Tripartite authorities – the Treasury, Bank of England and Financial Services Authority] are willing to discuss any proposals made; any proposal that envisages an ongoing role for the authorities, beyond their statutory and regulatory functions, will be evaluated on its merits against the authorities’ stated objectives.”

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