Branson's bid for Northern Rock smoothed as Olivant pulls out

The investment firm Olivant withdrew just hours before the Government's deadline for bids.

Only one other contender stands in the way of Virgin - an offer from Northern Rock's management team.

But that proposal is likely to lead to thousands of job cuts, a clearly unattractive outcome during an economic slowdown and in the Labour heartland of the North-East.

The sticking point for Olivant was understood to be the timetable for repaying £25billion of government loans.

Olivant, run by former Abbey boss Luqman Arnold, wanted five years, but the Treasury insisted on three.

There were rumours last night that the company might attempt a renewed bid despite having missed the deadline.

Under the Virgin deal, Northern Rock would be rebranded Virgin Bank. About £1.25billion of new equity capital would be injected and a further £500million would come from a rights issue.

It is still possible that the Virgin bid will fail and the Government will be forced to nationalise the bank. But Liberal Democrat treasury spokesman Vince Cable appeared to think not.

He condemned what he called the "sweetheart" deal with Virgin, a suspicion that was raised after Sir Richard's trip to China with Gordon Brown last month.

Mr Cable said taxpayers' interests were not being protected and called for Northern Rock to be taken into "temporary public ownership".

Northern Rock shares closed down 8p at 88p.