Applegarth resigns from Northern Rock as Branson and Arnold table offers

By Sean Farrell, Financial Editor

Adam Applegarth, the chief executive of Northern Rock, resigned from the stricken mortgage lender yesterday as Sir Richard Branson and the former boss of Abbey National lodged proposals to take control of the bank.

Mr Applegarth will leave the mortgage lender by the end of January. He had already offered his resignation twice after the bank was forced to go to the Bank of England for emergency funding. His departure is part of a swingeing board overhaul by Bryan Sanderson, who took over as chairman a month ago. Four non-executive directors have been axed and three executive directors have been ejected from the board but stay on as managers.

Mr Sanderson will add two non-executives: John Devaney, chairman of National Air Traffic Services and Telent, and Simon Laffin, an adviser to CVC Capital Partners, the private equity firm. Mr Sanderson is understood to want a smaller board suited to the restructuring and sale process ahead.

Mr Sanderson said: "Adam's participation in the next phase of the strategic review is important, not least due to his extensive knowledge of the business and his ability to lead the process during this difficult period."

Sir Richard Branson's Virgin Money and Olivant, the investment group led by former Abbey National chief executive Luqman Arnold, submitted proposals to Northern Rock yesterday. Virgin plans to install Sir Brian Pitman, the former chief executive of Lloyds TSB, as chairman of the bank, which would be rebranded with the Virgin name.

Virgin said it would immediately pay back a "significant" proportion of Northern Rock's £20bn-plus debt to the Bank of England. It is thought that paying back less than a quarter of the loans would lack credibility with the Treasury and the Bank of England. Virgin said it had "a clear timeline" for full repayment of the loans and the ending of the Treasury's guarantee of deposits, though it gave no details.

Olivant said it would make a "prompt" repayment to the Bank of England after taking control of the bank. Olivant would take a minority stake in Northern Rock, retain its brand and rebuild it. It said its only financial return would come from the increased value of its investment.

Mr Arnold said: "The key to repayment of the Bank of England facility is to stabilise Northern Rock and restore confidence in the bank and its brand."

Sir Brian ran Lloyds in the 1990s when it was Britain's top-rated bank and oversaw the acquisitions of TSB and Cheltenham & Gloucester. He is still feted as a guru on banking, though some attribute Lloyds' recent woes to his relentless cost-cutting and aversion to international expansion and corporate banking.

Mr Arnold became chief executive of Abbey National in 2002 after the mortgage bank nearly imploded because of risky investments. He oversaw the sell-off of the toxic securities but sold the bank to Santander of Spain before he could revive its retail banking business.

Other potential bidders and financers of the Rock are likely to emerge in the next few days. JC Flowers, the private investment firm, did not submit a bid yesterday.

Any bidder may have to cope with further turbulence in the money markets after three-month inter-bank lending rates spiked in recent days. Alliance & Leicester's shares fell heavily for a third day running on rumours that it was struggling to fund its business and might have gone to the Bank of England for a loan.