Northern Rock's shares dive again as bid falls short

The only outright bidder is US hedge fund JC Flowers whose proposals emerged yesterday. It said that it would offer a "nominal amount" for the shares which could be only a few pence each.

Yesterday, Northern Rock's shares were temporarily suspended from trading half a dozen times because of huge imbalances on the Stock Exchange order book.

The price gyrated from a high of 105p to a low of 60p during the day, finally ending 7% lower at 97p.

Today they crashed another 14.2p to 82.8p as traders finally woke up to the fact that the bank has now twice said the bid will be substantially below the current share price.

Northern Rock also said today it wants to speed up the process and hopes to announce a deal before the Government's deadline next February.

It said it was now in discussions with a number of selected interested parties and added: "The company is aware that all stakeholders in the company want clarity on the outcome of the strategic review as soon as possible and is therefore progressing the process as quickly as possible."

Investors now believe there were two clear front-runners among the half dozen or so proposals which have been put forward to rescue the bank after it was forced to seek emergency financing from the Bank of England in mid-September.

The Government is said to favour the approach from JC Flowers because this promises to pay back £15 billion of the £24 billion which Northern Rock has borrowed from the Bank immediately and pay off the remainder over three years. But Flowers is unlikely to get the backing of shareholders. The Northern Rock board, headed by chairman Bryan Sanderson, is thought to prefer the approach from Sir Richard Branson's Virgin Group.

Like Flowers, Virgin plans to pump just over £1.1 billion into the business, but unlike Flowers it wants to keep the stock market listing.

Virgin has suggested it could pay back £10 billion of the Government loans immediately with the rest paid off over two to three years.