THE Northern Rock debacle looks set to claim its first scalp as it emerged this weekend that Bank of England deputy governor Sir John Gieve is facing mounting pressure to quit.

Gieve, 57, is expected to be asked to resign from his position in charge of financial stability.

The government is weighing up plans that would give the Bank’s financial-stability wing more powers to act decisively if it has to tackle the sort of upheavals that plunged Northern Rock into crisis in September.

Sources suggest that if Gieve goes, he would be replaced by a heavyweight City figure with extensive banking experience.

The government is coming under increasing pressure over its handling of the Northern Rock affair. The battle to gain control of the stricken bank looks likely to drag into January, missing the government’s Christmas deadline for a decision on the bank’s future.

The bank’s board and its investment-banking advisers are understood to be working on a plan to give exclusivity to one bidder in the second week of January.

The delay is likely to enrage Olivant, the investment group led by former Abbey chief executive Luqman Arnold, which made a revised proposal to take control of Northern Rock on Friday.

Olivant wants to parachute in a management team, raise £650m from investors via a rights issue and invest £150m of its own cash for a 15% stake.

Arnold and his team could take control in a matter of days because, unlike a rival offer from Virgin, Olivant’s plan does not involve a takeover.

“This would stop the bank from being rudderless for the next three months,” said Arnold.

Olivant has the backing of leading investors owning 23% of the shares. These investors, including hedge funds SRM and RAB Capital, have agreed to invest up to £440m in the share issue. Two groups representing small shareholders, who collectively own about 20% of the bank, have also backed Olivant.

The Northern Rock board and its advisers, investment banks Blackstone, Merrill Lynch and Citi, are this weekend examining Olivant’s detailed 100-page offer. A consortium led by Virgin Group faces increasing opposition from shareholders.

Olivant is putting pressure on the Northern Rock board, led by chairman Bryan Sanderson, to act swiftly. The two sides are expected to meet early this week.

However, sources close to the auction process said that the bank’s board wanted to spend the next month working with Olivant and Virgin to refine their proposals. Bankers think an auction could take more than a month. Despite the Christmas deadline, the government is also determined to ensure it has examined all options in detail.

This could include running down Northern Rock’s mortgage book and selling assets – a move that may not require the bank to be nationalised or put into administration.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive