Northern Rock shares are trading under a pound.

It is amazing to think that quite recently shares in UK mortgage lender Northern Rock were trading at over £12. Today the price is just under a pound and with a further fall in view with the demotion of the bank stock from the FTSE-100
index.

The Tories are opposed to a nationalisation of Northern Rock. The Lib-Dems want a temporary nationalisation so that the institution can have time to sort out its problems. These involve being proped up by the Bank of England,which must be tearing its hair out, with a £25bn loan.

One factor is the number of Labour Members of Parliament in the North-East of England, who would be unhappy about any radical surgery to Northern Rock. However, the reality is that the bank is becoming increasingly frail with the loss of retail deposits despite the guarantee of full protection. This just leaves the £100bn mortgage loan book, which is unlikely to be rock solid, given the high loan values Northern Rock was giving to customers.

The preferred bidder is Virgin Money, which is benefitting from its brand name in proposals to turn Northern Rock around. Richard Branson is known as a tough negotiator but it might be better to finalise a deal with him than go for the option of nationalisation.