The Olivant consortium, led by Luqman Arnold, the former chief executive of Abbey, was due to submit a proposal for the bank to ministers yesterday, but withdrew its interest, reportedly blaming the inflexible terms set by the Treasury in its financing package.
Arnold said: "We have been unable to formulate a value creation proposal, which meets our investment criteria, while also respecting the government's proposed financing terms and the interests of other stakeholders in the company."
This leaves the government with just two proposals to pick from for the stricken bank -- Branson's Virgin Group and Northern Rock's existing management, which said yesterday it had submitted a plan to retain its independence.
Yesterday, Branson attacked the independence plan saying that customers had no confidence in the Northern Rock name. His plan will include the business being rebranded under the Virgin banner.
Virgin's proposal involves injecting the most equity into Northern Rock -- a total of £1.25bn.
Branson's group plans to inject Virgin Money, with a valuation of £250m, into the bank, £500m from partners in its consortium and a £500m rights issue priced at 25p a share.
The government is to make a decision in the next two to three weeks before handing over the final plan to Brussels for approval in March.