British Prime Minister Gordon Brown said on Saturday that his government was in discussions with potential buyers for Northern Rock PLC after receiving a long-awaited proposal by Goldman Sachs on a funding package for the stricken mortgage lender.
Brown declined to comment on the details of the Goldman report but said Chancellor of the Exchequer Alistair Darling would make a statement to Parliament today, signaling a potential major breakthrough in the bid to find a rescue deal for Britain's biggest casualty of the global credit crisis.
The BBC reported that Goldman recommended that the government provide tens of billions of dollars in support to Northern Rock for up to five years, making nationalization of the bank look less likely.
Opposition lawmakers and other critics have claimed that nationalizing the lender would be hugely embarrassing for Britain's reputation as a financial center, while shareholders would be left with little or nothing of their original investments.
"I can confirm discussions are taking place with private firms who have expressed an interest" in Northern Rock, Brown told reporters during an official trip to China.
Brown said that the Goldman report "gives us a number of options" and reiterated the government's position that all options, including nationalization, remained on the table.
Brown's government has made clear that a state takeover is an option if private buyers fail to raise enough funds to repay more than ?25 billion (US$49 billion) that Northern Rock has borrowed in emergency loans from the Bank of England.
Goldman proposes converting those loans to Northern Rock into bonds that would be sold in small parcels once financial market conditions improve, the BBC said.
That would ease pressure on private buyers facing Northern Rock's huge debts at the same time that turbulent financial markets have made raising funds difficult.
The bank's preferred private bidder, Virgin's chairman Sir Richard Branson, who is part of the business delegation traveling with Brown on his trip to China and India, said his proposal could now involve Chinese funds.
Branson said, however, that the Virgin deal was essentially British-backed and that Northern Rock under Virgin ownership would be "very much a British bank."
Northern Rock also remains in talks with private investment firm Olivant about a rival proposal. Other potential bidders have not been named.
Brown said he had not discussed Northern Rock with Branson during the trip.
A potential obstacle to the reported support plan could be a veto by the European Commission on the grounds that it violates rules against state aid. The EU has given the British government until the middle of next month to find a solution to the crisis.
Asked whether the Goldman proposal might run afoul of EU regulations, Brown said: "I'm confident that everything we do will meet the necessary requirements of European law."
Both the government and the Bank of England have come under fire for their handling of the crisis at Northern Rock.
Brown dismissed suggestions by opposition lawmakers that London's reputation as a financial center had been damaged by Northern Rock's troubles.
"I think people appreciate that with a bad business plan the company could have gone under, but it was right for the reason of protecting financial stability to intervene," Brown said.
"I think the verdict on what has happened will be that we intervened and did so correctly to sustain the stability of the financial system," he said.
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