Yorkshire society eyes Northern Rock as Osborne prepares for sell-off

The Chancellor is expected to confirm the Government will put the bank up for sale after months of deliberation.

Other contenders for the business include Sir Richard Branson’s Virgin Money, the Coventry Building Society, investment groups NBNK and Olivant and Tesco Bank.

It is understood the Chancellor and the Treasury were advised to sell Northern Rock, rather than hand it back to taxpayers or float it on the stock market.

Advisers from Deutsche Bank said a straight sale was the most cost-effective way for the Government to deal with the bank, but the final decision rests with Mr Osborne.

Northern Rock was nationalised in February 2008 after it collapsed amid the credit crisis, sparking the first run on a UK bank for 150 years.

The Government split Northern Rock in two last year, forming a mortgage and savings bank called Northern Rock Plc and Northern Rock Asset Management (NRAM) to house the more toxic loans.

It is the former half - the so-called good bank - which is preparing to return to private ownership.

Earlier this year, the Government launched a tender for advisers - won by Deutsche Bank - to look at options for Northern Rock, including a possible sale.

Virgin Money earlier this year expressed an interest in buying parts of Northern Rock, with 600 Lloyds bank branches, to form a new high street bank.

UK Financial Investments, which owns and manages the Government’s bank stakes, vetoed proposals to remutualise the bank, which had been supported by Business Secretary Vince Cable.

But the lender could still end up as a mutual, with building societies such as Coventry and Yorkshire among the potential bidders.

Northern Rock earlier this year insisted it was on the road to recovery despite posting an annual loss as it prepares itself for private ownership.

Northern posted pre-tax losses of £232.4 million in 2010, but narrowed losses in the second half of the year to £92.4 million, compared to £140 million in the first six months.

Ron Sandler, Northern’s Government-appointed chairman insisted progress was being made but could not give any indication as to when the bank hopes to return to profit.