Surprise as B&B mulls bid for part of N Rock

The news came as a shock to the stock market because, like Northern Rock, B&B is a building society-turned-mortgage bank that has been viewed as a victim of the credit crunch. Also like Rock, it was heavily reliant on the money markets to fund its activities, with less than half its deposits coming from savers.

However, sources close to Northern Rock said B&B, under chief executive Steven Crawshaw, had been among one of the original eight to 10 organisations to come forward with proposals when the board effectively first asked for rescue plans three months ago.

A B&B spokeswoman said it "is not currently pursuing a bid for Northern Rock" but declined to comment on whether it is interested in parts of the bank. B&B shares today fell 1p to 256¼p. - their lowest for more than three years. Northern Rock rose 6p to 92p.

B&B has shored up its position in the past month by selling two of its mortgage books, stating it had raised £2.5 billion from the money markets since the crisis blew up and reassuring investors its profits are on target to hit City forecasts of about £357 million this year.

However, it has admitted it has £265 million of exposure to subprime-related assets, and cancelled a planned share buyback. It took a loss of up to £40 million on the sale of a £2 billion commercial property loan portfolio to GE Real Estate and £2.2 billion of housing association mortgages to Dexia.

B&B said at the time it would concentrate on its core residential mortgage business, which is what it would look to acquire from Northern Rock.

A Northern Rock source said: "As far as we are aware, nothing has changed."

It is understood B&B indicated it could be interested in buying between £5 billion and £10 billion worth of mortgages from Northern Rock. It is still said to be interested in that idea but Rock's board, led by chairman Bryan Sanderson, prefers the idea of a more complete rescue package from Virgin or financial services group Olivant.

The Treasury or taxpayer is now guaranteeing Northern Rock's liabilities to the tune of £57 billion following its decision to back all its commercial borrowing yesterday.

Chancellor Alistair Darling is finalising plans to ensure that any future emergency rescue of a bank can be achieved far more rapidly. He said: "We need a system that can respond to difficulties in the future and problems that arise quickly. We need to make the Bank of England, the Treasury and the Financial Services Authority more responsive and clarify the responsibilities of the three."