YOU have to hand it to Richard Branson. Probably better than anybody else in the business of buying businesses, he understands that the battle is fought in two arenas. One is around the table with lots of documents, the other is in public.

And right on cue, just when it looks as though his Virgin Money-led bid for Northern Rock might be stalling, he mentioned the dreaded N-word: nationalisation.

What the buccaneering businessman actually said - well, "threatened" is a better word - in an interview on Channel 4 was that "shareholders have to realise that if Virgin doesn't get this away it's likely that no-one will get this away, and it's likely that it will end up being nationalised and the shareholders will get nothing".

Branson is probably right on the first count. If the Virgin Money consortium fails to buy the stricken mortgage lender, given that it looks like the most generous bid, then the odds of a cheaper bid making the grade with shareholders are a big fat zero. For "shareholders", by the way, read hedge funds and other big investors who plunged into Northern Rock's share register when it first turned turtle. Branson is addressing the City, not small shareholders.

However, on the second count of nationalisation, Britain's favourite entrepreneur is flying a very high kite. The odds of Gordon Brown nationalising Northern Rock are about one in 10 at this stage.

The government - in the form of the Financial Services Authority, Bank of England and Treasury - may be reportedly dusting off a nationalisation contingency, but that is to be expected. Golden rule of banking: prepare a worst-case scenario even if you do not expect to use it.

But there is a £25 billion-to-£30bn reason why the N-word is way off the agenda. This is the worryingly elastic line of credit that the Treasury has extended to the bank. At present, the money is loaned at hefty rates against Northern Rock's increasingly tarnished collateral. If the bank were nationalised, that sum would be put in jeopardy.

The government would hope to get the lifeline back, but it could only reel it in bit by bit from selling off Northern Rock's assets.

And since the brand is generally considered a liability, those assets are reduced to its loan book and its deposits. They certainly have a value but, equally certainly, that value is diminishing day by day.

The big attraction of the Branson and, to a lesser extent, the competing Olivant bid - the only other one on the table - is that they would immediately pay back a big chunk of the lifeline and the balance within three years or more. Although we have become accustomed to stupendous sums of money being lost by the government on IT contracts and other investment blunders, even Whitehall would welcome the return of £25bn-£30bn to the fold. For one thing, it would help Alistair Darling stay closer to the government's self-imposed - but already breached - borrowing guidelines.

There is a further argument against nationalisation that the prime minister would not relish being known. For very good reasons, governments of all stripes hate running financial institutions. There are precedents of course - the Bank of England "bought" National Mortgage Bank in 1994 and, a decade earlier, Johnson Matthey's insolvent banking arm. In each case the transaction cost one quid.

But the experience was not a happy one. It was six years before the government could sell National Mortgage Bank. And the rescue of Johnson Matthey's banking division, which was opposed by a young lawyer named Tony Blair, dumped a heap of debt onto the Bank of England at a bad time. The lesson is that government ownership tends to result in long, drawn-out, messy affairs.

Branson is also right on his final point: the shareholders might end up with nothing.

Stricken though it is, Northern Rock is not yet beached. Although it revealed a £281m write-down late last week, it still predicts underlying pre-tax profits for 2007 of between £500m and £540m. In other words, its basic business of booking interest from mortgages continues to function and this is the attraction for the bidders. Branson would not be in the game if his consortium did not see a way of paying off the government and turning the loan book and the deposits into a robust long-term business.

It is the underlying profit that gives the Treasury hope that it will get its £25bn-£30bn back. Given its wider responsibilities to taxpayers over Northern Rock's shareholders, that must be the main consideration in determining the future of the bank.

Branson is not exaggerating when he implies that dilly-dallying by shareholders in green-lighting his bid - or any bid - is a dangerous game. For proof, shareholders need only look across the Atlantic.

When American mortgage lender Countrywide ran into difficulties three months ago, for similar reasons to Northern Rock, Bank of America jumped in and bought a $2bn (£995m) stake in it. Since then, the value of the stake has fallen by about two-thirds. Bank of America's investment is now worth around $660m. The conclusion? Dial N for Nightmare. And nothing else.