Northern Rock Plc's share price plunge after needing a lifeline from the Bank of England has turned the mortgage lender into a stricken target, more likely than ever to fall prey to a takeover bid.
And with customers forming queues to withdraw their savings at Northern Rock branches across Britain, some analysts said on Friday the Bank of England may already be talking to others in the industry with a view to encouraging a bid for Britain's eighth-ranked lender.
They (the Bank of England) will seek to calm this down. It would not surprise me if they are talking to every bank. It will not be inactive in making sure there is financial stability, said an analyst who asked not to be identified.
Friday's plunge wiped a third of the value from Northern Rock's shares, which touched a near seven-year low of 433p -- some two thirds below their 1,258p peak hit in February.
The stock suffered one of the biggest one-day price falls of a major British financial institution in recent memory as its market value dropped to less than $4 billion from $5.7 billion at the close on Thursday.
Northern Rock is in play, said Mamouon Tazi at MF Global Securities in London. They now have enough liquidity to weather the storm so now it all depends on whether or not we see suitors. They have had people who have knocked on their door.
Tazi said Northern Rock, despite having a small deposit base in proportion to its loan book, could attract a well-capitalized buyer such as France's Credit Agricole, Dutch lender ING or even Barclays if its takeover bid for ABN AMRO fails.
Adam Applegarth, Northern Rock's chief executive, said the bank will hunker down and would evolve its business model when stability returns.
He declined to comment on the prospect it could be taken over, but added: I know the fiduciary duty and it will be in the best interests of shareholders.
Applegarth had previously been dismissive of the possibility of a takeover bid, ranking it less significant than his local soccer club sorting out its defense. I worry more about Newcastle United buying a decent central defender than I do about getting taken over, he reportedly said in January.
Analysts said a UK-based bid looked most likely since many continental European banks are too distracted by other business to be tempted to buy Northern Rock even at fire-sale prices.
Italy's largest bank UniCredit for instance is busy absorbing its smaller Italian rival Capitalia which it bought earlier in the year, while its rival Intesa San Paolo is focused on the Italian market.
Even Banco Santander, which bought British mortgage lender Santander in 2004 and is thought by some investors to be interested in expanding in Britain, has its hands full as a member of a three-bank consortium bidding for ABN AMRO
Santander has said many times that they don't want more mortgages, and they've denied interest in Alliance and Leicester
for example and I think that's an absolutely credible position, said De Frias.
The most likely outcome is for Northern Rock to be taken over by another British bank, said an analyst who follows Italian and Spanish banks. HSBC has been mentioned as another possible British suitor.
The only positive, if any, is if a white knight/bargain hunter comes in to rescue what is in essence an excellent asset-gatherer. This may offer some modest support against an otherwise terrible day today, said James Hutson, analyst at Keefe, Bruyette & Woods, in a research note.
Others said that, with credit markets in a state of flux and Northern Rock's business model -- based on funding itself on wholesale markets -- dead in the water, potential buyers may be reluctant to move quickly, if at all.
Why buy a bank whose business model is broken? said Arturo de Frias, chief banking analyst at Dresdner Kleinwort. It's not a bad business ... but growth is going to be limited because of rising interest rates, new entrants being squeezed out and increased leverage of mortgage owners, said De Frias.
Investors also need time to assess the impact of the unfolding crisis on Northern Rock's lending.
I think there is a good possibility it will be in play in time, provided people can see exactly what the damage is, said Stephen Webborn at SG Securities in London.
(Additional reporting by Lisa Jucca in Milan, Elisabeth O'Leary in Madrid, Steven Slater in London and Emma Davis in Brussels)