Rock in freefall as crisis grows

JC Flowers said that it would inject just over £1 billion of new equity into the crisis-torn bank and had secured £15 billion of backing from a number of blue-chip banks, most of which could be used to pay off emergency loans from the Bank of England almost immediately. But it is understood Flowers' proposal would see it make only a "nominal" offer to shareholders which some people suggested could be as low as 10p a share.

With at least one other bidder looking set to withdraw, sources said Sir Richard Branson's Virgin Group had emerged as the front-runner to rescue Northern Rock. The news came as the shares plunged, leading to at least half a dozen brief trading halts as the Stock Exchange introduced emergency auctions.

The shares, which had opened at 104.2p, having fallen 21% yesterday, at one point dived to an all-time low of 60p. At that level, Rock would no longer be a FTSE 350 company, never mind its current FTSE 100 status. Howard Wheeldon of broker BGC said:

"Shareholders expecting to get anything out of Northern Rock are on a hiding to nothing. Despite the shares being suspended no fewer than six times this morning, this has not so far led to a permanent end of trading - no doubt that will come soon. When it does, it will mark the beginning of the endgame for Northern Rock."

The Stock Exchange defended its systems, saying the shares had stood up to very volatile trading, and had never been formally suspended.

As news of the Flowers offer emerged, trading stabilised with the shares 9.2p lower at 95p, but they were later off 19.1p at 85.1p. Flowers, led by billionaire New York socialite John Flowers, made a commitment to keeping the former building society's operations in the North-East and said it would use the Northern Rock name "at least for the mortgage business".

Flowers has assembled a strong potential management team headed by its proposed chairman Paul Myners, former chairman of Marks & Spencer.

If its proposals were to be accepted by the Northern Rock board and, more importantly, by the tripartite authorities of the Bank of England, Treasury-and Financial Services Authority-Flowers claims it could repay much of the Bank of England's loan.

Northern Rock has so far borrowed £24 billion from the Bank at penal rates of interest. Flowers reckons it could reduce this below £10 billion almost immediately and pay the remainder back within three years.

That could make the Flowers bid the most attractive option to embattled Chancellor Alistair Darling, who was yesterday forced to admit he could not guarantee that taxpayers would get back all the money that has been pumped into Northern Rock.

Existing shareholders favour former Abbey chief executive Luqman Arnold's approach through his Olivant group. He would inject new capital by taking a 20% stake in the bank, which could see other shareholders regain value if he turns it around.