Northern Rock had already borrowed more than £10billion from the Bank of England at penal rate of more than 6.75% interest rate as the bank had been hit hard by the credit crunch which caused the liquidity in the interbank money markets to dry up overnight. This was further exacerbated by the run on Northern Rock bank during September which was only halted when the Government agreed to secure 100% of the first £100k of savings in Northern Rock Bank (Northern Rock Savings 100% UK Government Guarantee).

The loan from citibank will strengthen Northern Rock as a potential bid target as the rate charged by Citibank will be inline with the interbank rate of 6.25%, which has declined as liquidity returns to the interbank market in recent weeks as a consequence of the Fed rate cut and huge amounts of liquidity provided to the European banks by the ECB.

Northern Rock's advisers had already been in talks with US buyout firm JC Flowers and US firm Cerberus as potential rescuers. The battered Northern Rock share price had been bouyed by takeover speculation and had risen to £1.59 on Friday after trading as low as £1.12 earlier in the week. Further gains are expected in tommorrows trading.

By Phillipa Green
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