The British government has told two suitors for Northern Rock to improve their offers or it will nationalise the country's fifth-largest mortgage lender.
A consortium led by Richard Branson's Virgin group has been told it is a front-runner in the race, ahead of a rival "in-house" offer led by the bank's management team, Treasury officials said.
Both bidders were asked to offer better terms because they did not offer a good enough deal for the taxpayer.
"We are in intensive discussions with Virgin but all options remain on the table," Chancellor Alistair Darling told BBC radio. "Of course the option of a short period of nationalisation has to remain on the table".
The Northern Rock debacle has become a major headache for Prime Minister Gordon Brown. The bank already owes taxpayers £25 billion
(€34 billion) and has been put on the government's books as some £90 billion of debt.
However, a significant improvement of the bidders' terms could prove difficult, given difficult financial markets and an uncertain outlook for the mortgage sector and bad loans.
The government has sought to avoid the political embarrassment of putting Northern Rock into public ownership.