Sir Richard has said his Virgin Group will make an offer for the troubled bank, while Arnold's investment group Olivant and the in-house team have also said they will bid.

Virgin, if selected, will scale back the amount of capital it would inject into Northern Rock to about 1.25 billion pounds (S$3.54 billion) from 1.55 billion (S$2.2 billion) earmarked previously, a source familiar with the matter said, including 250 million pounds from Virgin Money 500 million from a rights issue.

Virgin has been reported to be the government's preferred choice, as it offers the cleanest break from Northern Rock's past, but the source said Virgin would not sweeten its offer to make it less dilutive in order to attract the support of the bank's top two shareholders, hedge funds RAB Capital and SRM.

The government, which wants a private sector buyer, needs to choose which is the best option for the bank's future as well as for British taxpayers. It could still opt for a temporary nationalisation if none of the offers stack up.

By 0846 GMT (4.46pm Singapore time) Northern Rock's volatile shares were up 3.7 per cent at 99-1/2 pence, valuing the bank at 420 million pounds.

The government could make its decision in about a week, but may take until the end of the month. The final decision is likely to rest with Prime Minister Gordon Brown.

Northern Rock has borrowed 25 billion pounds (S$35.4 billion) from the Bank of England since September after the onset of the global credit crisis caused its business model to collapse.

The government is guaranteeing financing being made available to all bidders, meaning the bank's fortunes will be tied to the state for several years.

The winning bidder is expected to carry out a low-risk strategy for the group.

Rival banks will be watching for any unfair advantage that could be gained from the government backing, for example if Northern Rock started aggressively offering mortgages while still benefiting from the state's cash. -- REUTERS