Northern Rock Ripe for Takeover Bid

September 17, 2007 No Comments »

After Northern Rock’s share price plummeted and depositors queued up to snatch their at-risk funds, larger banks began weighing the risk to scoop up the ailing mortgage lender at a serious discount.

Lloyds TSB was asked by Northern Rock to mount a last minute rescue takeover of the distressed mortgage lender, and the two had detailed talks, but the deal was eventually blocked by the Bank of England and the Financial Services Authority.

Instead, Northern Rock was bailed out by the Bank of England, who gave the ailing lender emergency funds at the eleventh hour.

The Bank of England also gave the greenlight to a potential takeover bid, extending their line of credit to those interested in acquiring the beleaguered lender.

Northern Rock is now valued at 1.84 billion pounds, marking a 63% drop in value this year and a major price cut for potential suitors.

Scratch that…now valued at 1.3 billion pounds as of trading today.

What’s favorable about the company is that it still has 800,000 mortgage customers, 1.5 million “savers”, and 76 branches, though customers have emptied the bank of roughly $4 billion, or 8% of its deposit base.

The big question now is who will step up to save the troubled lender?

Royal Bank of Scotland and Bank of Scotland have both distanced themselves from claims of a possible takeover.

A source close to The Scotsman said “I don’t think you’ll be likely to see us making a bid for Northern Rock. We pursue a policy of diversifying away from mortgages. Ten years ago, Halifax would have made 80% of its profits from mortgages, now the group makes just 20%.”

But BNP Paribas SA, France’s largest bank and Credit Agricole SA, Europe’s biggest mutual fund manager, have both been rumored as potential buyers, as well as HSBC and Citigroup.

Divisional director at analysts Brewin Dolphin, Mark Durling, said, “It is going to happen. Northern Rock is not a subprime lender – it is a quality bank. A bank will take over its mortgage portfolio and merge it with its own. When you consider it was worth £5.8 billion in March and it is now valued at just £1.8 billion, it is definitely a bargain.”

There’s also the possibility that the lender will sell off its parts, as opposed to executing a single takeover deal.

Either way, sources say Northern Rock will iron out a deal to be sold by year’s end.

Northern Rock was the worst performer on the FTSE 100 today, down 34.25% in late trading.

Update: The government said it will guarantee all deposits with Northern Rock after more than £2bn has been withdrawn by anxious customers since the bank applied for emergency funding from the Bank of England last week.

Leave A Response