One of the two bidders for Northern Rock last night threatened to withdraw its offer unless the bank's board promised to set a date for a takeover within the next 10 days. Olivant, which is locked in battle with Sir Richard Branson's Virgin Group, warned that a decision would be needed before Christmas or it would be forced to scrap its bid.
A source close to the private equity firm said it expected to hear from the bank's board in the next few days that the bidding process would be brought to a quick conclusion. Without these assurances, the source said Olivant would be forced to withdraw. It also wants to talk directly to Citigroup and Deutsche Bank about getting a loan of up to £15m to repay money paid in by taxpayers, and accused the Rock's board of blocking discussions.
The ultimatum from Olivant, which is run by former Abbey boss Luqman Arnold, is a blow to government hopes of a private sector auction for the bank.
Shareholders that backed the Olivant bid would also be left fuming if they believed they Northern Rock board had blocked their favoured bidder.
It is understood the bank wants more time to assess the business case set out by both bidders. The bank and the government are keen to establish how the rival managements would run the bank and make a success of it beyond the initial few months.
The government's woes were intensified yesterday when acting Liberal Democrat leader Vince Cable today attacked Virgin and its boss Richard Branson in parliament, saying: "I don't want to run the man down. But it has now been pointed out that Mr Branson does have a criminal record for tax evasion. Therefore there is good reason to believe that the people who have to stump up the money for his consortium may well not regard him as a fit and proper person to run a public company - let alone a bank and let alone be responsible for £30bn of public money."
He urged the chancellor Alistair Darling to step in and take an active role to protect taxpayers' funds. The Bank of England is expected to say today that Northern Rock has increased its borrowing from the public purse following a further exodus of savers. The bank has borrowed £25bn so far.
Northern Rock shares slipped on fears that its future was becoming more unstable by the day and the prospect of a bid by Christmas had all but disappeared.
Branson's Virgin Group was named as preferred bidder two weeks ago. The Olivant bid was submitted late last week. The prospect of a third bid from the US buyout firm Cerberus has receded, though it may re-enter the fray.
Northern Rock's chairman, Bryan Sanderson, said on Monday that he believed a decision on a sale was unlikely before Christmas but he emphasised the board preferred a private sale.
Cable claimed Northern Rock and the government were conducting a charade. "The two main bidders have one crippling disadvantage, which was suspected at the start and is now painfully evident: neither can realistically raise the kind of massive loan in currently paralysed money markets which would ensure the payment of the Treasury loan in good time.
"They are both promising prompt repayment of the easy half of the government loan. But it is the other half which is the problem."