Northern Rock must overcome hurdles to find buyer

By Mathieu Robbins and Daisy Ku

LONDON (Reuters) - Northern Rock NRK.L will need to overcome hurdles including tight balance sheets and uncertainty over what remains of its business to be successful in any attempt to find a buyer, bankers and analysts said on Monday.

Appetite among larger UK banks, already battered by exposure to U.S. subprime mortgages and the tightening credit market, for a further balance sheet investment in a company like Northern Rock is low, they said.

And uncertainty about the impact on Northern Rock's business of the turmoil of recent days also makes it impossible to set a reliable value for the lender, said investment bankers.

"The issues are: what is the right pricing for the assets you'd be buying?" said one banker.

"It's like catching a falling knife right now: you may be all right, but there's a chance you won't be. And the business model has been shown to be fragile in markets like this."

As thousands of customers queued to withdraw savings from Northern Rock, its shares continued to plunge. Yet analysts said buyers may be reluctant to pay a premium to its share price.

"Buyers for the group are likely to be few, and any one that does emerge is likely to be in a position to drive a hard bargain," wrote Lehman Brothers analysts Robert Law and Raul Sinha in a research note on Monday.

Banks working hard to meet their own liquidity commitments would find it difficult to finance additional assets on their balance sheets. Northern Rock's assets were valued at last disclosure at 113 billion pounds.