Tesco set to bid for Northern Rock

Tesco has joined Virgin in the race to buy Northern Rock, the bank nationalised last year after it over-extended itself as the financial crisis unfolded, the Times reported this morning. The supermarket has already announced plans to open bank branches in a number of its stores and currently offers a number of savings products to customers.

As a result of the recovery in the financial sector in the wake of the government’s stimulus operations, the battle for the bank looks to be widening. The players in the drama at this stage are said to be Tesco, Virgin and a number of private equity companies.

According to the Times, Gordon Brown wants to underline the successful turnaround of Northern Rock, by selling it back into the private sector at a big profit for its public owners. Any delay would risk handing an incoming Conservative government the credit for the windfall. Insiders are therefore convinced that a sale is likely to be carried out before the next election, which must take place by the middle of 2010. A flotation is also being considered but is likely to be sidelined as it is a slower process than an outright sale.

Part of the attraction of the new Northern Rock is its separation into good and bad parts, with the government holding onto some of its toxic loans to make it more palatable for potential investors. However this approach still has to be ratified by the European Commission.

Tesco made no comment on the issue, while the a spokesmen for the Treasury said "Any decision will be taken in the best interests of financial stability and of the taxpayer." ·