Thousands of anxious Northern Rock shareholders will gather tomorrow with the shadow of nationalisation looming larger.

Any doubts that Gordon Brown and Alistair Darling are prepared if necessary to take the ailing bank into public ownership were removed at the weekend with the news that Ron Sandler, a City heavyweight who was once head of Lloyd’s of London, has been lined up as provisional executive chairman to run the organisation for the Government if it becomes necessary.

The latest disclosure of contingency planning for the nationalisation option was clearly designed to put pressure on shareholders to accept a viable private sector bid and resist attempts tomorrow to restrict the board’s ability to sell assets.

Taxpayers’ exposure to Northern Rock has already exceeded the £50 billion mark, with the bank having borrowed £25 billion from the Government which has also extended guarantees worth at least another £25 billion.

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David Cameron said yesterday that nationalising Northern Rock would be “the most complete humiliation and failure for the Government”.

Senior government sources told The Times that a Treasury announcement this week on Northern Rock’s future was unlikely, and that the search for a private sale went on.

Ministers clearly hope that shareholder opposition to bids from Sir Richard Branson’s Virgin Group and Olivant, the private equity group, would diminish if they believed that nationalisation was the only alternative. But tomorrow the board of Northern Rock will attempt at an extraordinary general meeting to fight off demands from shareholders for a greater say in the bank’s future.

The investors are expected to flock to the Metro Radio Arena, in Newcastle upon Tyne, to vote on proposals that Bryan Sanderson, the Northern Rock, chairman has described as “potentially damaging”.

The hedge funds SRM Global and RAB Capital, which own about 18 per cent of the lender, want to limit the board’s ability to sell assets and issue shares without special shareholder approval. They say they want to protect shareholders’ rights, although the board — which is urging investors to vote against — has said that the measures could tie its hands over a rescue.

The board is also facing fury tomorrow over the disclosure that it has implemented a generous bonus package for senior staff. The company has described the scheme, under which staff can get a quarter of their annual gross salary in bonuses every three months, as essential to retaining personnel vital to getting the bank through its present problems.

The recruitment of Mr Sandler, who was approached by the Treasury in November, indicates that contingency plans for Northern Rock are well advanced. He said yesterday: “In the event of nationalisation, I have agreed I will go in as executive chairman.” His role would be “to get things stabilised, to make sure the bank has proper plans in place”.

If Mr Sandler is appointed, it will not be the first time that he has been parachuted into a difficult business situation. As chief executive of Lloyd’s of London he received credit for bringing the insurance market back from the brink of collapse.

Virgin and Olivant, the potential suitors for the bank, are said to be struggling to secure financing. Limiting the board’s ability to issue new shares would also have a bearing on the Virgin and Olivant rescue bids because both involve rights issues.

The bank has borrowed about £26 billion in emergency funding from the Bank of England so far, although it sold more than £2 billion of mortgages to JP Morgan — the American investment bank that has just hired Tony Blair — to ease its burden.

Speaking on Andrew Marr’s programme on BBC One, Mr Cameron criticised the Government’s handling of Northern Rock. He said that a potential offer from Lloyds TSB for Northern Rock should have been considered more carefully.

The Tory leader also alleged that advice from City experts to sell the bank as soon as possible had been ignored for political reasons. “I rather suspect that because of the planning for the early election the Government didn’t want to take a decision,” he said.

Bank in the balance

Sept 13 News that Northern Rock has sought emergency funding from Bank of England (BoE)

Sept 14 Run on Northern Rock by customers; shares fall 31 per cent

Sept 17 Alistair Darling pledges government guarantee of all deposits; shares tumble

Sept 20 BoE pumps £10bn into long-term money markets

Oct 9 Guarantee to customers extended to cover all new deposits

Oct 19 Matt Ridley, chairman, resigns; Bryan Sanderson, CBE, replaces him

Nov 26 Consortium led by Sir Richard Branson’s Virgin Group named as preferred bidder

Dec 7 The Olivant Group enters race to take control

Dec 13 Adam Applegarth, CEO, leaves; Andy Kuipers takes over

Jan 7 Goldman Sachs presents Government with proposals for a £12bn-£15bn Northern Rock bond issue to be underwritten by BoE

Jan 11 Northern sells £2.25bn of equity release mortgages to J P Morgan; money goes to BoE to repay part of £26bn of loans

Jan 12 Treasury signs up Ron Sandler to head Northern Rock in event of its nationalisation

Source: James Rossiter

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