HM Treasury first issued the guarantee in September for all unsecured retail products of Northern Rock plc and many of its wholesale deposits and borrowings. This latest announcement extends these arrangements to a wider range of wholesale products – uncollateralised and unsubordinated wholesale deposits, payment obligations under derivative trades, and payments under Northern Rock’s Granite mortgage securitisation programme.

In a statement, HM Treasury said: “The extension is in line with the previously announced objectives of the Tripartite Authorities of financial stability and the protection of the taxpayer and consumer and for the purposes of Northern Rock plc’s credit ratings in respect of the wholesale obligations described above.

“No change is being made to the guarantee arrangements in respect of retail deposits of Northern Rock plc, which remain fully protected under the announcements previously made by HM Treasury. Northern Rock plc will pay an appropriate fee for the extension of the guarantee arrangements.

“As previously announced, the arrangements to protect retail and wholesale depositors of Northern Rock plc will remain in place during the current instability in the financial markets. Reasonable notice, which will not be less than three months, will be given by HM Treasury of any termination of these arrangements.”

Meanwhile, the bidding race is still on for Northern Rock. Sir Richard Branson’s Virgin Group looked to be taking the lead again yesterday when it was revealed that rival bidder Olivant was up to £300million short in its rescue plans and Branson had upped the profile of his bid by bringing in senior figures to take the roles of finance director and treasurer.

But, according to reports, Olivant – led by former Abbey National boss Luqman Arnold – is certainly not out of the race, as it is believed the group may bow to pressures and come up with the extra cash.

Olivant is thought to be in a position where it does not want to jeopardise its chances of winning control of Northern Rock. Therefore, it may give in to the demands of the Bank of England, the Government and Northern Rock itself to up its bid to £800million – the maximum Arnold said he was prepared to pay.

So with no clear front runner, it is thought the takeover saga will continue into the New Year and, if the Government fails to find a private sector bidder by February, it is likely that Northern Rock will have to be nationalised.

© Fair Investment Company Ltd