Luqman Arnold, Northern Rock’s would-be saviour, isn’t afraid of grand gestures. During his previous brush with British banking, when he was parachuted in as chief executive to sort out Abbey, he came up with a plan to “turn banking on its head”.

Concerned that the world might not appreciate the full boldness of his vision, Arnold had a replica of an Abbey branch built – upside down – in an empty building close to the company's London head office.

Startled analysts and journalists were shown round the topsy-turvy creation – and lectured on how serious Arnold was about changing the face of banking by ending decades of poor customer service.

This time round, Arnold might do well to keep his big ideas to himself. Last week his investment group, Olivant, tried to seize the initiative in the battle for Northern Rock, the stricken mortgage lender whose woes have proved serious enough to create a political nightmare for Gordon Brown and chancellor Alistair Darling, and left taxpayers hugely exposed after Northern Rock was forced to borrow £25 billion from the Bank of England.

Upside-down Arnold could be the answer to the government’s prayers. While a consor-tium led by Sir Richard Branson’s Virgin Group is the Rock’s preferred bidder, Olivant has – crucially – secured the backing of leading Northern Rock shareholders.

Olivant is also indicating that it could pay back more of the Treasury’s money early – £15 billion against the £11 billion from Virgin. And Arnold, whose plans were first revealed by The Sunday Times, is also dangling the incentive that the Treasury could benefit through a share stake if he can nurse the ailing bank back to health.

It is a high-stakes game and a fast-moving one – Arnold is hoping that he can win the day and take control within a week.

Much of Arnold’s career has been in investment banking.

Born in Calcutta in 1950, to an English father in the Indian civil service and an Indian mother, he went to a leading English public school, Oundle, and the University of London.

He has spent most of his working life abroad in Paris, Dallas, Singapore, Hong Kong and Zurich. In 1996 he joined the Swiss banking giant UBS, rising to become the first non-German-speaking president, but was ousted after a board-room battle with veteran chairman Marcel Ospel in 2001.

Though Arnold has been described as an outsider, former colleagues said he is “charming” and “cerebral” – a top-notch investment banker prepared to take tough decisions and a strategic thinker.

But Arnold, whose Thai wife runs a successful chain of restaurants in London, is also idiosyncratic. At Abbey he cleared his office of virtually all furniture, insisting on working standing up at his computer on a higher-than-usual desk – a habit which apparently allowed him more space to think.

A more bizarre quirk was his demand that he should never stay in a hotel room which had adjoining rooms – something that baffled staff at the bank.

He is also known for his creative leanings – he loves opera, is passionately interested in architecture and is chairman of the Design Museum.

ARNOLD is certainly being creative in his bid for control of Northern Rock.

Unlike Virgin and JC Flowers, which last week walked away from the auction, he is not proposing to buy up the bank. Instead, Olivant aims to inject up to £800m into Northern Rock through a £650m rights issue from investors and by investing £150m itself, giving it a stake of about 15%.

Crucially, the rights issue would be at Northern Rock’s market price – 110p on Friday – rather than at the deep discount of 25p per share proposed by Virgin, giving it 54% of the shares.

Under Olivant’s plan, the Treasury would also have a chance to benefit from a revived Northern Rock through gifted warrants – in effect an option to buy 5% of the shares at a price thought to be more than 100p per share.

Since Olivant’s offer is not a takeover of Northern Rock, Arnold and his team could take control within days. Leading investors, including hedge funds SRM and RAB Capital, with 23% of the shares, have already agreed to invest up to £440m in the rights issue. The two largest small shareholder groups have also come out in support.

Two weeks ago, Olivant looked out of the running: Virgin had gained preferred bidder status and Arnold’s plans were seen as at best vague.

Now he has muscled his way back in with a detailed proposal running to around 100 pages, outlining business plans and financing details.

Virgin may still be clinging to preferred-bidder status, but it is under pressure. This weekend Virgin is looking at ways to revise its bid. One option would be to increase the value of the discounted rights issue from the 25p to more than 50p.

“The issue for shareholders is how much of this company they get to keep – the Olivant proposal is far more attractive,” said James Hutson, analyst at Keefe, Bruyette & Woods.

But in this tortuous saga, nothing is that simple. The response of the bank’s board to Olivant has been lukewarm.

Olivant is thought to have become frustrated with what it believes is delaying tactics and an obsession with detail by the Northern Rock board.

Many bankers say there are a host of issues to be thrashed out – from management credibility, business plans and the huge task of arranging financing for Northern Rock.

Arnold’s track record in building a retail bank is arguably unproven. His vision to turn banking on its head included refocusing Abbey on its core retail banking and personal-finance businesses.

A £26m rebranding created a logo that was lambasted as more suitable for a nursery school and seen as a failure.

To be fair, Arnold did not have time to achieve his dream as Abbey was sold to Spain’s Santander for £8.2 billion in late 2004. Even so, Olivant’s management team are far more credible than Virgin’s, which is led by Jayne-Anne Gadhia, who has never run a public company.

Where Virgin has an advantage is consumer confidence and its brand – factors believed to have helped to slow the £200m a day that was being withdrawn by savers. Many argue the Northern Rock brand, which Olivant would keep, is irreparably damaged and could compromise a revival.

Virgin is also injecting more money – £1.3 billion, including the £650m rights issue.

And there are other thorny issues, such as business plans.

Darling is determined that Northern Rock should never get into financial straits again. The perceived strength of the business models will be a major factor in how fast the Bank’s loans can be repaid.

What is clear is that Northern Rock will shrink and cannot return to the disastrous model of relying on capital markets for 75% of its funding. EVEN if the bidders can leap these hurdles, it is not certain they could raise the huge sums to repay the Bank.

Last week, Arnold said he was “totally confident”, but Virgin is said to have become less sure it can raise the £11 billion it wants.

Royal Bank of Scotland, Deutsche Bank, Citi and two other banks have been lined up to provide funds. However, none will commit until it is clear a bid has the backing of the government, would not fall foul of European rules on state aid and has shareholder support.

That creates a problem for Darling. His options have boiled down to a choice between two proposals where finance is not rock-solid, and nationalisation.

Though a private-sector deal is the favoured route, the government admits “all options are on the table”.

Olivant and Virgin may be vying to be the bank’s saviour, but as it gets weaker by the day, there’s a fair chance neither will get to be heroes.

THE HEDGE-FUND KEYSER

IN the already opaque world of hedge funds, Jon Wood of SRM enjoys special status, writes Louise Armitstead.

His nickname is Keyser Söze, after the underworld kingpin in Hollywood’s The Usual Suspects, whose ruthlessness and influence are almost mythical. It’s a comparison Wood, 46, likes so much he uses it himself.

He shuns personal publicity yet is clearly bellicose.

As well as standing firm against the Bank of England, the Treasury and the City watchdogs on Northern Rock, he fought a highly charged case against Sir Tom Hunter over the sale of the Gadget Shop.

He is also a passionate kickboxer who trains several times a week.

Former colleagues say he’s bright, brash and ambitious.

He told one friend: ‘The thing I love about the City is that it doesn’t matter if no-one likes you.

“The stock market is your proof of success and each day you can win or lose and it’s got nothing to do with anyone else.’

Yet to the close circle around him Wood is very different from the usual hard-nosed corporate raider.

Although of Yorkshire stock, Wood, the middle of three brothers, was brought up in Whitstable, Kent.

Profoundly dyslexic, at school he struggled except at sport and maths, although he “scraped” a 2:2 in economics from Loughborough University.

His fascination with the City started early. He told friends he was drawn by the idea of being his own boss and gaining influence and wealth without being a film star.

After jobs with Durlacher and Kleinwort Benson, Wood moved to UBS, starting the Strategic Risk Management (SRM) division – it swiftly became the bank’s biggest revenue generator. and Wood one of its most important employees. He was given a free rein to do as he pleased, including moving his team to work out of Monaco.

After 16 years, SRM spun off from UBS last year.

Wood said his mission statement is the same: to fight for the protection of minority shareholder rights.

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