Virgin Group's £1.25 billion (€1.68 billion) bid for Northern Rock plc is stronger than a rival proposal from the mortgage lender's management, the UK treasury said yesterday.

A treasury spokesman said it was in "active" talks with the group led by billionaire Richard Branson of Virgin, but has not ruled out the management offer. Nationalising the bank also remains an option, he said.

"All options remain on the table," chancellor of the exchequer Alistair Darling said in an interview with BBC Radio 4. "I want to look and see what we can do and reach a private sale. But a short-term nationalisation has got to remain on the table."

The UK has made about £55 billion in loans and guarantees to banks since a surge in borrowing costs shut off access to funding in September. Northern Rock investors, including RAB Capital plc, are backing the management's proposal, led by former Resolution plc head Paul Thompson, because Mr Branson's plan would dilute their holdings.

"Shareholders will want the best outcome for them, whereas the government is more interested in taxpayers and the repayment of the debt," said Mamoun Tazi, an analyst at MF Global Securities in London. "This is the conflict."

Northern Rock, bailed out by the Bank of England as it struggled to fund loans last year, "continues to engage with the authorities regarding our proposal," Brian Giles, a spokesman for the Newcastle, England-based company, said in an interview yesterday.

Virgin "remains in constructive discussions" with the central bank, government and regulators, its spokesman, Nick Fox, said.

British prime minister Gordon Brown has become more involved in the negotiations and has warmed to the idea of nationalising the bank, according to bankers involved with the bids, the BBC reported.

Bloomberg