Northern Rock rumbles on

The government wants payback of £200m if Sir Richard Branson’s Virgin Group succeeds in turning round Northern Rock within three years. The Treasury is negotiating with the Virgin team after an alternative rescue plan from Rock’s management was turned away. Nationalisation is the only other option. SRM, the hedge fund which is the biggest shareholder in Rock, will on Friday submit a paper to the Treasury arguing that the European state aid regime should not have been applied to the former building society. SRM’s Jon Wood believes the government could be acting as a shadow director of Rock, leaving it exposed to potential legal action by investors.

Virgin and Rock’s management team are due to submit revised proposals which will be discussed by Gordon Brown and then sent to Brussels, which must clear them to ensure they do not breach state aid rules. A decision by Brussels is not expected until early summer.