Northern Rock 'offered lifeline'

US banking giant Citi is understood to be prepared to lend the bank between £5 billion and £10 billion to help ease its funding crisis, according to Sunday newspapers.

The exact terms of the deal are still being worked out, but the funding would enable the troubled group to stop borrowing at the Bank of England's emergency rate, which is thought to be around 7%.

It would also put the UK's fifth biggest mortgage lender on a more stable footing, and enable it to continue to operate as an independent group, thwarting the bidders that are currently circling it.

Despite previous attempts to stabilise the bank, it is understood that up until now no commercial lenders were prepared to deal with it.

Citigroup was originally called in to work alongside Merrill Lynch advising Northern Rock on a sale.

It emerged last week that New York-based private equity firm JC Flowers had raised £15 billion to bid for the bank.

The fund's head Chris Flowers is understood to have gained funding commitments from JP Morgan, Credit Suisse and Wachovia.

The private equity chief, who specialises in distressed takeovers of financial firms, is said to be keen to keep the Newcastle-based lender intact, unlike Cerberus, a rival private equity firm also rumoured to be interested in parts of the business.

US private equity firm Blackstone and its UK rival Apax are also rumoured to be looking at the bank.