Shares in crisis-hit Northern Rock jumped yesterday after one of the City's foremost bankers unveiled rescue plans for the mortgage lender.
Former Abbey chief executive Luqman Arnold, it emerged, is not making a full offer for the Newcastle-based group, but wants to move quickly to begin a turnaround of the bank with a heavyweight management team.
Northern Rock's shares rose by seven per cent to close 10p ahead at 155p on the news, despite concerns about how Mr Arnold's team would overcome the lender's estimated £20 billion-plus debt burden that has built up since it was forced to seek emergency funding from the Bank of England in September.
Panmure Gordon analyst Sandy Chen praised Mr Arnold for doing a "good job in a difficult situation" with Abbey, where he returned the business to profit and sold it to Spain's Santander in 2004.
But he added: "The one thing they are clear about is that it is not a bid. The bigger question with Northern Rock remains how they address the funding issues."
It is understood that Mr Arnold's investment group Olivant would take a minority 15 per cent stake in Northern Rock - worth around £95 million. It will not charge fees and rely on a recovering share price for its profit.
Olivant, which is expected to remove under-fire chief executive Adam Applegarth, has refused to comment on how it plans to deal with the bank's debts, or on the future of the lender's 6,000 staff.
Sources said Olivant is convinced speed is critical for a rescue as a full takeover could take months to complete while Northern Rock's situation worsens.
But Collins Stewart analyst Alex Potter said: "If you were a saver, would you go back to Northern Rock? There is a wider issue of credibility and branding here."
Mr Arnold's "core team of experienced principals" includes Alan Morgan, a former senior partner at management consulting firm McKinsey, and Kirk Stephenson, the managing director of international law firm Freshfields.
Olivant believes that investing in its shares and installing Mr Arnold as boss can help it to access fresh borrowings elsewhere. The investment group is thought to have raised around £150 million ahead of launching the rescue plan.
Details of his proposals are expected to be finalised ahead of this Friday's deadline set by Northern Rock's adviser, Merrill Lynch, for bids to be submitted.
So far a consortium led by Sir Richard Branson's Virgin Group and private equity firms Cerberus and JC Flowers have expressed an interest in Northern Rock, which turned to the Bank of England when the crisis in US sub-prime mortgage lending caused money markets to dry up.
Prior to working at Abbey, Mr Arnold led Swiss investment bank UBS Warburg. As chairman of Knightsbridge-based Olivant, he is aiming to invest in financial services businesses in Europe, the Middle East and Asia.
The investment group unveiled its first investment in July when it bought a 10 per cent stake in MDM, Russia's eighth largest bank.
Northern Rock put itself up for sale in September after the credit crunch forced it to seek help - a move that resulted in the first run on a high street bank for about 150 years.
The bank, which has aggressively chased market share in recent years, was highly exposed to turmoil in the wholesale credit markets as 75 per cent of its lending is financed through short-term loans.
Market sentiment was summed up yesterday by Simon Willis, a banking analyst at stockbroker NCB, who said: "Northern Rock shares have been falling away in the last week, and it's fair to say that Luqman Arnold is a very credible candidate to lead a turnaround programme. People already knew that there were three interested parties, and a fourth could make a meaningful difference."
