The auction of what is left of Northern Rock is, like much else in this sorry saga, a process with bewilderingly few reliable precedents. Would-be buyers, far from being locked in a tense bidding war, are all painstakingly pointing out how little is left in this business for them.

One bidder, Olivant, unexpectedly laid down its paddle and quit the floor altogether before the action even got started. Another, Virgin, vehemently denies it is buying into a "gravy train" and is admitting, for the first time, that redundancies in the Rock's 6000-plus workforce may now be inevitable.

The only other bidder, an in-house Rock team led by former insurance executive Paul Thompson, wants to shrink the bank back to its pre-bubble size, halving its assets and rediscovering the virtues of a strong depositor base from which to build substantial new mortgage lending.

Imagine they were a trio of art collectors, locked in telephone bidding frenzy to get their hands on a seminal Rembrandt. The first suddenly announces a previously-undisclosed conviction that however many millions he might pay today, it would turn into a lot fewer millions tomorrow. So he walks out.

The second breaks off from bidding and goes round the room telling anyone who will listen that nobody's ever made a penny out of pictures. And the third asks the saleroom staff if they wouldn't mind trimming off a bit of the background and stick what's left of the canvas in a smaller frame. That way ownership might make some sense.

Some auction. Private equity group, Olivant, chaired by former Abbey chief executive Luqman Arnold, pulled out at the 11th hour on Monday. It had been "unable to formulate a value creation proposal which meets our investment criteria while also respecting the government's proposed financing terms."

Put simply, Olivant did not believe it could turn the Rock into a viable standalone bank again, capable of longer term growth, while paying back the Bank of England's £25bn of loans, even if converted into government-backed bonds, within the three-year time-frame the Treasury has set out.

Olivant's surprise retreat was bad news for existing Northern Rock shareholders. Its terms would have left them with much more of the business than Virgin. But it was arguably even worse news for ministers anxious to see some real edge in the final bidding.

The next-best option for shareholders, focussed on self-interest, is to back the in-house bid. And that's what many seem to be doing. Like Olivant, its plans are much less dilutive of that interest than Virgin. But there lies a snag.

Thompson says he wants to continue new lending at a rate of between £2bn and £3bn a year. And to fund that, he wants to double the Rock's retail deposits from where they are now.

"Over the three-year period we will rebuild the deposit base and that should leave us with a bank that is roughly 50% retail funded and 50% wholesale funded, with the government paid off," he suggests.

But Thompson also insists his team wouldn't use current government support to compete aggressively with high street rivals for either new mortgage or savings business.

So where are all these new depositors eager to lend their money to a bank still called Northern Rock? Where will they be three years on if, having got its money back, the government reconsiders the guarantees it introduced to stop a run on Northern Rock in the first place?

The in-house team knows it suffers from a perception problem. Meanwhile, the rival Virgin bid, having seen off Olivant, is busily tweaking expectations of what it can deliver. Jobs, perhaps as many as a thousand, are likely to go.

There is no quick turnaround to be made, even if Northern Rock is rebranded as Virgin Money, no killing to be made, no gravy train to be boarded, claims the man now leading the Virgin bid, former Lloyds TSB chief executive Sir Brian Pitman.

In part he is confronting shareholder hostility to Virgin's terms, warning them that, without a government guarantee, Northern Rock is already broke and their investment worth nothing. But he also knows that, if shareholders dig their heels in, the Newcastle-based bank could still slip through Virgin's fingers and end up nationalised.

It's hardly an auction at all now. Rather an exercise in who blinks first. There will be more dire warnings in the weeks ahead, as the government tries to reach a resolution before the European Commission deadline of March 17 when temporary state aids must cease.

But its hand has been weakened by Olivant's withdrawal - witness desperate Treasury attempts to talk Arnold back on to the floor - and by the non-appearance of any new bidders once the terms of its own loans into underwritten bonds scheme had been revealed.

This saga's capacity to inflict lasting damage on Gordon Brown's administration is not over yet.