At least four bidders are set to submit plans for stricken bank Northern Rock on Friday but its future could remain uncertain for months as the British government gauges the political fallout of its options.

Richard Branson's Virgin Group, U.S. private equity firms JC Flowers and Cerberus, and a team led by veteran troubleshooter Luqman Arnold are all expected to table proposals by Friday's informal deadline for initial proposals.

People familiar with the situation told Reuters that ideas ranging from parachuting in new management to an outright buyout will be put to the government, which sanctioned a bailout of Northern Rock in September after it ran into a funding crunch.

But the bidders are still trying to assess the extent of Northern Rock's liabilities and how much help they can expect from the government.

Northern Rock came unstuck when the global credit crunch undermined its strategy of relying on wholesale money markets to fund aggressive mortgage lending during Britain's housing boom.

Friday's Financial Times said between six and eight proposals were expected to be pitched. Most would be priced aggressively low, it said.

Advisers running the auction sent an information memorandum to interest parties. There was interest from about 50 parties and between 10 and 20 are believed to have been sent the memorandum, according to a person familiar with the matter.

Friday's deadline is regarded as informal, and proposals could still be submitted over the weekend or early next week. Northern Rock is expected to acknowledge the deadline has passed and where the auction process stands on or before Monday.

Since it turned to the Bank of England for emergency funds two months ago, Northern Rock is estimated to have borrowed between 20 billion and 25 billion pounds ($41-51 billion) from the central bank, based on BoE data and analyst estimates.

That loan, and whether the Treasury will extend the funding line beyond February, will be a key issue for suitors and advisers to thrash out.

The key question about all this is will they get any proposals that can fix anything in this market and if not what are they going to do, said one source close to a potentially interested party.

The prospect of a long-term loan backed by taxpayers is adding to political pressure to resolve the bank's future, but may be necessary to attract offers given borrowing in financial markets looks likely to remain expensive against a difficult credit market backdrop.

A senior investment banker said the UK government may feel the need to incentives a large bank to take on Northern Rock's assets, rather than see them go to what could be viewed as private equity, in the event of a sale.

POTENTIAL RESCUERS

A spokesman for Richard Branson's Virgin Group confirmed on Friday that a consortium it is heading planned to submit a proposal later on Friday.

U.S. buyout firm JC Flowers has said it is interested in making an offer and former head of UK bank Abbey and veteran troubleshooter Luqman Arnold is preparing a move through his investment company Olivant, which would take a minority stake in Northern Rock and put a new team in charge.

Wall Street buyout and restructuring powerhouse Cerberus is also interested and is fronting a break-up consortium, sources familiar with the matter have said.

Northern Rock shares were down 1.6 percent at 132.5 pence by mid-morning, valuing the bank at 560 million pounds. The shares are down 80 percent since the bank sought Bank of England help and down almost 90 percent this year.

Shareholders could be left with nothing and the Bank of England could still be funding the lender in three years, according to estimates in the information memo put together by the bankers handling the auction.

It showed Northern Rock could still owe as much as 5.9 billion pounds to the Bank of England in 2010.

The memo was posted on FT.com's Alphaville site. Northern Rock has won an injunction restricting publication of some of the details of the memo.

The memo outlines three options -- a preferred option of selling all of the company and two alternatives involving the sale of assets and the banking infrastructure, leaving shareholders invested in a rump company -- but alternative offers for assets and liabilities were welcome, it said.

Northern Rock is being advised by Merrill Lynch, Citigroup and Blackstone.

(Editing by Elaine Hardcastle and David Cowell)

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