NBNK is prepping its formal bid for 632 Lloyds branches and a reduced package of assets to cut down the branches’ £20bn funding gap.
In a supplementary move, the buy-out vehicle chaired by Lord Levene and led by Gary Hoffman could also make a bid for Northern Rock so as to shave some £6bn off the funding gap.
As City A.M. revealed in August, NBNK has been eyeing a bid for the Rock once its prohibition on buying the bank runs out in November.
Yesterday, Hoffman refused to rule out entering the fray for the Rock, which he used to run, but said instead: “Northern Rock would not be something we would want to do on its own or first.”
The Rock assets on sale, which are likely to fetch around £900m, have a deposit surplus of some £6bn. That could prove unappealing for other interested parties Virgin Money and JC Flowers due to the difficulty of making high returns off the excess liquidity.
But it could be an advantage for NBNK if it is looking for ways to plug the Lloyds branches’ funding gap.
It is likely that the package on which it bids will include less than the £68bn in assets originally on sale. But it will still need some extra funding, which could come from its banks, UBS and RBS, or from vendor advisers JP Morgan and Citi.
NBNK has now received “comfort letters” from shareholders to back its bid for the Lloyds deal, which is expected to sell for around £2bn.