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An investment group headed by the former boss of Abbey is set to propose a rescue plan for troubled bank Northern Rock.

Olivant said its chairman Luqman Arnold would work "intensively" with Northern Rock's board as part of the proposed move, which would involve the investment firm taking a minority stake in the Newcastle-based lender.

Mr Arnold, viewed as one of the City's most experienced bankers, is best known for joining Abbey after the UK's fifth-largest bank fell into the red five years ago.

He is credited with having stabilised Abbey's performance prior to the sale of the business to Spanish bank Santander.

A rescue plan is now being proposed for Northern Rock, which was at the centre of the first run on a British bank in almost 150 years in September.

Northern Rock savers rushed to withdraw their cash from the lender after it emerged that the company had asked the Bank of England for an emergency loan, due to liquidity problems prompted by the ongoing global squeeze on credit. The government was subsequently forced to guarantee the savings of Northern Rock customers, in order to restore confidence in the UK banking system.

In a statement today Olivant confirmed weekend press reports that it is preparing a proposal for Northern Rock's board which would spare the bank from a complete sale or break-up of its operations.

"The proposal would involve the immediate introduction into Northern Rock of a core team of Olivant's experienced principals, led by its chairman, Luqman Arnold, to work intensively alongside its existing board and management, together with a subscription of a minority stake in Northern Rock, intended to ensure Olivant’s alignment with the board and shareholders," the investment group said.

Further details of Olivant's proposals have not been revealed, but the Sunday Times reported yesterday that its plans include the possibility of Mr Arnold replacing Northern Rock's current chief executive Adam Applegarth.

News of Olivant's plans for Northern Rock come ahead of Friday's deadline for potential suitors to declare their interest in the beleaguered bank.

US private equity group JC Flowers and a consortium led by Sir Richard Branson's Virgin group have already both indicated that they are considering tabling official bids for the lender.