Stricken mortgage lender Northern Rock picked a rescue team led by Sir Richard Branson's Virgin Group today as favourite to take it over.
Northern Rock is now in "accelerated" talks with the Virgin-led consortium after naming it as the preferred bidder.
Sir Richard's team is planning to brand Northern Rock under the Virgin banner and pay back £11 billion of the estimated £25 billion borrowed from the Bank of England immediately.
It promised a "clear path" towards repayment of the remainder of the loan. Virgin also hopes to retain most of Northern Rock's 6,000 staff if its bid is successful.
Prime Minister Gordon Brown said the Government is focused on financial stability and protecting the taxpayer throughout the Northern Rock crisis.
Shares in Northern Rock swung wildly as investors digested the bank's announcement, falling 18 per cent in early trading, before surging to stand 42 per cent higher at one stage in the morning.
Virgin's offer will see £1.3 billion of funds injected into the group in return for a controlling stake of no more than 55 per cent.
The consortium did not reveal a takeover price, but it did say it would look to raise funds by offering new shares at a price of 25p each — a fraction of the current price.
Sir Richard said in an open letter to Northern Rock customers that he is hoping to bring about a "fresh start" for Northern Rock.
"Over the past two months, Virgin has been working hard on a proposal to save Northern Rock and rebuild its financial strength. I have been personally very committed to finding the right solution," he added.
Northern Rock will be merged with Virgin Money as part of the deal, with Virgin Money chief executive Jayne-Anne Gadhia appointed to head the group.
Virgin's team confirmed it would keep the bank's headquarters in Newcastle and plans to continue contributing some of the group's profits to the Northern Rock Foundation, a charity formed 10 years ago when it converted from being a mutual organisation.
Bryan Sanderson, chairman of Northern Rock , welcomed the bid as being "very good news for Northern Rock".
He said: "I am grateful for the support that we have had from customers and employees who have stayed loyal to us during these difficult times, and pleased that a solution that firmly restores the company's prospects has been identified."
But the deal would need to secure the backing of Northern Rock investors, who have become increasingly concerned that a sale of the company could wipe out the value of their shareholdings.
PA