LONDON (AP) — Shares in Northern Rock PLC slumped more than four percent yesterday amid increasing speculation that the troubled mortgage lender will be nationalised, rather than sold off to a private investor.

Stepping up pressure on Northern Rock ahead of a key shareholder meeting today, the British government has lined up the chairman of Bermuda insurance company Ironshore to run the bank in the event it is taken public.

Analysts said the naming of Ron Sandler, a former chief executive of Lloyd's of London, as provisional chairman suggested the government's contingency plans were well advanced and warned that if shareholders at today's meeting vote in favour of resolutions by two private equity firms to remove power from the board, nationalisation will almost certainly be the result.

If Britain's largest casualty of the global credit crisis is put under state control, shareholders will receive nothing or little for their shares.

Northern Rock shares were down 4.3 percent at 83.5 pence ($1.64) yesterday. The stock has dropped more than 85 percent since September 13, the day before Northern Rock revealed it had sought the emergency funds after it failed to raise funds in the wholesale money markets.

Thousands of investors are expected to attend the meeting in Newcastle, northern England, to face the board for the first time since the crisis and vote on proposals which Northern Rock's chairman Bryan Sanderson has described as "potentially damaging."

Hedge funds SRM Global and RAB Capital, which share a 17-percent stake in the bank, have put forward four resolutions that will restrict the board's freedom to strike a rescue deal. The pair fear that Northern Rock will succumb to political pressure given the Treasury's involvement in negotiations with potential suitors.

"If RAB and SRM win tomorrow, we believe a rescue deal will be much harder to achieve, and it's hardly been easy thus far, and the government will very likely nationalise the bank," said Collins Stewart bank analyst Alex Potter. "We feel this will leave very little for equity shareholders."

Potter showed little more optimism for Northern Rock's future should the four resolutions being put forward by RAB and SRM — which include preventing the board from selling five percent of the bank's assets or issuing shares for more than five percent of the bank's share capital without shareholder approval — fail.

"If the hedge funds lose, a rescue deal is still not guaranteed and unlikely to be materially above the current stock price in any case. In short, heads you lose and tails you don't win," he added.

Sandler said on Saturday he would take charge of Northern Rock if it was nationalised, but said no decision had yet been taken. Northern Rock said on yesterday it continued to work on a private sale. The mortgage lender has named Richard Branson's Virgin Money as its preferred buyer with the government's support. Virgin plans to take a 55 percent stake in the business, rebranding it under its own banner.

It also remains in talks with private investment firm Olivant about a rival proposal that would see Olivant take a 15 percent stake, putting its own management team in place to whip the bank back into shape.

However, there is increasing speculation that tough credit market conditions mean that neither of the two bidders will be able to raise enough funds to immediately repay the £25 billion ($49.3 billion) that Northern Rock has borrowed in emergency loans from the Bank of England.

Treasury chief Alistair Darling said yesterday that a decision would be reached "very shortly," and reiterated earlier comments that all options are open.

"Ideally, I would like a private sector solution because I think it would be better if Northern Rock could be acquired by another financial institution," Darling told BBC Radio Scotland. "But conditions are tight at the moment, so we have to keep all options on the table, including nationalisation."

David Cameron, the leader of the opposition Conservative Party, said that nationalising the bank would represent "complete humiliation and failure" for the government in its handling of the crisis.