Where next for Northern Rock?

The Rock is undoubtedly in a hard place. And the best it can hope for is a quick offer from a bidder - at the right price, reports Paula John.

The Bank of England's announcement last Thursday night that it would extend a credit facility to the hamstrung mortgage lender was a double-edged sword: a necessary lifeline to allow Northern Rock to keep trading, but a simultaneous kiss of death to depositor and investor confidence.

A run on the bank ensued, with Northern Rock depositors withdrawing over £2bn in savings from Friday to Monday. Alistair Darling's promise on Monday night to underwrite ALL deposits (not just the most part of the first £35,000 held by any individual as covered by the Financial Services Deposit Scheme) has so far failed to cut the queues of anxious customers waiting to withdraw their funds. As one saver put it, "I wasn't too concerned until the Government stepped in - now the alarm bells are really ringing."

The bell has certainly tolled for Northern Rock as a viable business. The Northern Rock board's first duty now is to secure as high a price as it possibly can from a buyer. Those currently in the frame include Lloyds TSB, RBS and Barclays - some of the only UK banks big enough to meet the Rock's lending requirements.

The horse trading has already started, with these three arguing that the bank should be sold at a discount, given its current funding liabilities. Northern Rock would argue that it has a solid mortgage book of good quality borrowers, a great mortgage servicing and IT system and a sales team that is the envy of other lenders. And that any buyer at current prices would already be getting all of this for a song.

Northern Rock is unlikely to want to sell for less than its book value, reckoned by Credit Suisse to be around 390p a share. Bidders will have to make a call and decide whether to hold out for a lower price - or miss a potentially golden opportunity.