Virgin tipped to buy Northern Rock

Sir Richard Branson's Virgin Money looks to be in pole position to land Northern Rock as the auction of the nationalised lender nears its conclusion.

Final bids for the Newcastle-based bank are due this week, with the Sunday Times reporting that Virgin will pip buy-out vehicle NBNK to the prize.

The sale is likely to crystallise a loss of at least £400 million for taxpayers, who pumped in £1.4 billion after the bank's collapse four years ago.

Meanwhile, Lloyds Banking Group is expected to veto a straight sale of the retail banking business that it must spin off to meet competition rules.

The Sunday Telegraph said a stock market flotation of the Project Verde business, which includes 632 branches, was now a near certainty.

It is another blow for NBNK, which was the only remaining bidder after placing a valuation on Verde of less than half its book value, or £1.5 billion.

NBNK, which is led by Lord Levene and former Rock chief executive Gary Hoffman, viewed the Lloyds branches as the base for a move on Northern Rock, which it believes would be too small to survive as a standalone bank.

Virgin's other rival for Northern Rock, the American private equity firm JC Flowers, is reportedly on the brink of dropping out of the bidding process.

Virgin is backed by Wilbur Ross, the billionaire Wall Street investor, as well as an Abu Dhabi investment fund and a large British pension fund.

The current eurozone financial crisis, which has led to fears over the stability of the European banking system, is likely to have drained the appetite of bidders for both banking operations.