Shares in the troubled bank fell by more than 17% on Tuesday after it revealed there had been no interest in a bid for the whole firm. Northern Rock shares stood at over £12 each in February, but have now fallen to below 90 pence apiece.
The Bank of England has lent the bank more than £24bn in emergency funding, a move defended by Chancellor Alistair Darling in the Commons on Monday. Both the Conservatives and the Liberal Democrats have criticised the loans.
Mr Darling had told the Commons in a statement that the loan move was "right" to give the bank time to assess its "strategic options".
In addition, the government has pledged to guarantee the £16bn worth of savings deposits held by Northern Rock customers. Those who have so far expressed interest in Northern Rock include a consortium led by Sir Richard Branson's Virgin, and Olivant, an investment firm led by former Abbey chief executive Luqman Arnold. Private equity firms JC Flowers and Cerberus have also looked at the UK's fifth-biggest mortgage-lender.
Northern Rock, which has around 6,000 staff, has said it expects to receive further expressions of interest over the "next few days". But the company has said the proposals received so far from potential investors were "materially below" the stricken bank's share price.
Northern Rock was forced to seek emergency funding from the Bank of England in September after the jamming up of world credit markets wrecked its business model.
The government has a number of options when it comes to Northern Rock's future - it could let the bank go into receivership, seek a private buyer, or take it over itself.
Meanwhile, Northern Rock says it continues to be engaged in discussions with refinancing companies to explore refinancing "or reorganisation solutions for the company".
When the Rock bounced to 2.40 we believed that it was insane of anyone to think that a bid would be made at a higher level than that price and so shorted it, we proved to be correct. Our reasoning for this still stands and that is; although there is a business there, of that there is no doubt, the market out there is looking pretty rocky (no pun intended). Goldman Sachs has even warned of a deep recession saying that the slump in global credit markets may force banks, brokerages and hedge funds to cut lending by 2 trillion U.S. dollars and trigger a "substantial recession" in the United States, according to Jan Hatzius, chief U.S. economist at Goldman Sachs in New York.
According to Bloomberg News, he said losses related to record home foreclosures could be as high as 400 billion dollars. "The likely mortgage credit losses pose a significantly bigger macroeconomic risk than generally recognized," Hatzius wrote. "It is easy to see how such a shock could produce a substantial recession" or "a long period of very sluggish growth."
Goldman's forecast reduction in lending is equivalent to seven percent of total U.S. household, corporate and government debt, hurting an economy already beset by the slowing housing market.
If this is the outlook for the US economy to suggest that the UK would be immune would be a little foolhardy. Anyone in the UK knows that a very large percentage of homeowners are leveraged to the hilt. In a micro hedge fund style investment strategy many have been able to purchase property with little cash down and have remortgaged gains to buy further properties.
With rents in the over inflated 'buy-to-let' market outstripping previous ratios by an unsustainable 60% the UK housing market is lined up like a pretty display of dominoes just waiting for someone to push the first one. We think there is a a very good chance that the US woes could be just such a push.
With all this in mind, would you want to be the owner of the fifth biggest mortage lender in the UK, without having a substantial discount from the potential problems that are lurking in the bank?
We thought not...