Northern sale 'sweetened by bonds'

CITY speculation is mounting that Virgin Group will sweeten its offer for Northern Rock as the Chancellor will today unveil a plan to convert the mortgage bank's £25 billion debt to the Bank of England into bonds.

Alistair's Darling's address to the House of Commons is due to take place mid-afternoon, and will follow a Stock Exchange announcement this morning of the details of the bond scheme.

Government advisor Goldman Sachs has come up with the plan to allow the bonds to be bought by private investors and increase the chances of a private sale of Northern Rock. It is also believed Darling will tell MPs that he will give the three bidders for Northern Rock – Virgin Money, investment group Olivant and an in-house proposal from its own management team – a fortnight to present financing plans.

Goldman's scheme amounts to bonds being issued backed by the government that will allow the payback of BoE loans to Northern, and the bank to be bought by a private bidder.

But shadow chancellor George Osborne claimed that the complex restructuring would "entrench the taxpayers' exposure" to Northern.

Virgin is reportedly going to say it is prepared to cut its proposed stake in the bank from 54 per cent to 45 per cent.