White knight Branson could be bruised by Northern Rock

London Briefing/Fiona Walsh: Showman or saviour? Last week Richard Branson leapt more than 400 feet from the roof of the Palms…

London Briefing/Fiona Walsh:Showman or saviour? Last week Richard Branson leapt more than 400 feet from the roof of the Palms Casino Hotel in Las Vegas in a bruising bungee jump to mark the launching of Virgin America, his new domestic airline in the US.

In publicity terms, at least, the stunt was a huge success. While images of the clearly-shaken 57-year-old tycoon dangling in mid-air - minus the seat of his pants - might not have been part of the PR plan, they successfully generated yet more column inches for Britain's best-known businessman.

So, too, has his leap into the abyss that is Northern Rock, the stricken mortgage lender currently being propped up by £13 billion of emergency funding from the Bank of England.

The emergence of Branson as a potential bidder for Northern Rock was greeted initially with some scepticism in the City of London. The founder of the Virgin empire, which spans trains, planes, mobile phones and space tourism, is renowned for his publicity-seeking antics, whether it be dressing up as a blushing bride or driving a tank down 5th Avenue in New York.

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He has, however, assembled an impressive collection of big-hitters to back his audacious plan to rescue the bank.

One of the best-known names is George Matthewson, the former Royal Bank of Scotland boss who now heads Toscafund Asset Management. It was Toscafund, along with other hedge fund groups, that successfully put ABN Amro into play, and Matthewson, who is acting as advisor to the consortium, is well-respected in banking circles. Other members of the team include the world's largest insurance company, American International Group (AIG); WL Ross, headed by the American billionaire and distressed debt specialist Wilbur Ross; and First Eastern Investment Group, headed by Hong Kong businessman Victor Chu.

Branson is hoping to further boost the credentials - and coffers - of his consortium by bringing in other investors, including one or more of the oil-rich Middle Eastern sovereign wealth funds.

He is also attempting to recruit a senior banker - names including former Lloyds TSB bosses Brian Pitman and Peter Ellwood have been mentioned - to head the discredited Northern Rock board.

Directors of the bank (who are unlikely to last long once a deal is clinched) squirmed under the spotlight yesterday as they were subjected to their first public grilling since last month's run on Britain's fifth-largest mortgage lender.

The Branson plan is to reverse Northern Rock's business into his far smaller credit card to pet insurance financial services arm, rebranding the business as Virgin Money. There will be a substantial cash injection, believed to be around £1 billion, and a larger refinancing package backed by other banks.

So far, so plausible. The Branson fan club have applauded the appearance of the energetic billionaire in the guise of white knight, although his detractors were swift to point out that, despite having been founded more than a decade ago, Virgin Money remains very much a minor league player.

It failed some years ago to break into the current account market, despite grandiose claims from Branson, and it has never even attempted a move into the fiercely-competitive mortgage market.

Then there remains the huge problem that brought Northern Rock to the brink of collapse in the first place - its lack of liquidity. The business must have a multi-billion-pound injection of funds if it is to survive, and its directors confirmed yesterday that the bank has so far drawn down £13 billion in emergency funding from the Bank of England.

That will have to be repaid within the next few months, at penal interest rates.

In total, Northern Rock is thought to require as much as £30 billion of funding, which is serious money even for Branson and his wealthy backers.

The Virgin boss also faces competition in the form of JC Flowers, the buyout firm headed by former Goldman Sachs banker Christopher Flowers, and from the Cerberous hedge fund, both of which have also put forward serious bid proposals.

The scramble to rescue Northern Rock represents a marked turnaround from just a few weeks ago, when the Newcastle-based bank looked unsaleable at any price.

Yet for shareholders the position remains grim. Whichever deal succeeds, investors are likely to get virtually nothing for their stock, with bidders instead offering a debt for equity swap. Hence the steep fall in Northern Rock shares this week.

All three potential bidders must also address the pressing issue of just how Northern Rock raises its funds. Unlike other mortgage lenders, it relies on money markets for around three-quarters of its cash, raising only 25 per cent or so via the traditional - and safer - route of retail deposits.

Branson's undoubted popularity among the public and his flair for publicity could be a significant asset in this respect. No doubt he is already dreaming up stunts to persuade savers to open a Virgin Money account.

However, with or without Branson, it is clear that restoring credibility to the Northern Rock business will be an enormous undertaking - and one that is likely to leave investors in the bank as bruised as the Virgin boss after his ill-advised Las Vegas leap.

• Fiona Walshwrites for the Guardian newspaper in London