The Treasury has demanded that the Virgin consortium and Northern Rock’s board inject greater levels of capital than currently offered to ensure that the estimated £25 billion emergency loan will be repaid.
The Northern Rock board’s proposal in particular failed to meet governmental requirements.
Alistair Darling also wanted a fairer deal for tax-payers by increasing shareholders’ share of profits should Northern Rock recover.
Reports have also emerged that the Royal Bank of Scotland, Barclays and Citi have offered to securitise half of Northern Rock’s emergency loan as an alternative to the proposition of turning it into governmental-backed bonds to be sold to investors.
The proposal from the trio of banks would reduce public exposure by removing the securitised assets from the public balance sheet. However, the scheme would be more expensive.
While Virgin is reportedly the Treasury’s first choice, shareholders have said that they may consider legal action if Virgin wins the bid, as it is felt that the consortium’s offer does not compensate shareholders’ interests in the bank.
Ashley Clark, director of NeedAnAdviser.com, said: “The government is in a very difficult position to demand of any consortium better financial solutions. I understand why it is doing it, because it’s got a duty to the taxpayer, but an equal duty to Northern Rock investors.
"Ultimately, it’s the government and the directors of Northern Rock that caused the problems. Somewhere along the line there will be a compromise.”
