City bets on Government takeover as most likely fate for Rock

Financial betting firm Cantor Index today made public ownership, either temporarily or permanently, its odds-on favourite for the outcome, with Virgin trailing in third place behind a rival rescue plan from former Abbey chief executive Luqman Arnold.

Cantor's David Buik said: "As the credit crisis deepens despite central bank intervention and with the Government having prevaricated for the past three months, public ownership now looks an odds-on shot."

He claimed Virgin's proposal was starting to lose some credibility, saying: "Sir Richard Branson looked decidedly ill at ease when being interviewed on Channel 4 last night - more physically dishevelled than usual as well as mentally!"

Branson warned Northern Rock investors: "Shareholders have to realise that if Virgin doesn't get this away, it is likely that no one will get it away, and it's likely that it will end up being nationalised and shareholders will get nothing."

He claimed the chances of saving the bank were still better than 50-50. "We are doing everything we can to save it," he added.

Vince Cable, the acting leader of the Liberal Democrats who has long argued that Northern Rock should be nationalised, said: "It is not an ideal situation but it is the least damaging solution and it is increasingly becoming the only solution.

"The private bidders, particularly the Branson consortium, look as though they are not able to raise the money that is necessary to take over the bank and guarantee in full the repayments to the taxpayer. A period of temporary public ownership is therefore necessary to stabilise the situation and give time to turn the bank around before floating it under better conditions."

The Government is taking nationalisation as a very serious option if a rescue plan cannot be found within two months.

The Treasury has already drafted an emergency Bill that could be turned into law in less than 24 hours if needs be.

But nationalisation would be a major embarrassment to Gordon Brown and Chancellor Alistair Darling, who have both championed a private-sector rescue.

Last night the Tripartite Authority of the Bank of England, Treasury and Financial Services Authority is understood to have put pressure on Northern Rock's board to give the Olivant bid equal status with Virgin. A source close to Olivant, the financial services group led by Arnold, said: "We are in a much, much better position today than we were yesterday and we are much happier."

Virgin was granted accelerated bidder status three weeks ago, and so has a considerable lead. But by being given equal status today, Olivant believes it will have equal access to the bank funding both bidders plan to use to pay back at least £11 billion of the £26 billion Northern Rock has borrowed from the Bank of England.

Olivant will also be granted detailed access to the former building society's books so that Arnold can decide whether his plan to parachute in his own management and run Northern Rock's finances tightly will work.

He claims the backing of 23% of Northern Rock shareholders. The bank's shares rose 4p to 90p today.