Tweet
• Ministers accused of sacrificing Fife mutual
• Mutual lost £26m after risky property deals
A buyer for Scotland's largest building society is due to be announced this morning after the City watchdog rejected pleas to resuscitate another lender crippled by unsustainable debts.
The Dunfermline building society, based in Gordon Brown's Fife heartland, is expected to be broken up today with its profitable savings arm bought by a high street bank or building society, making it the latest in a series of failed British lenders. Its chairman, Jim Faulds, who accused the government of "sacrificing" the society, confirmed that the mutuals Nationwide and Britannia, along with two banks, rumoured to be HSBC and Barclays, had been in talks with the Financial Services Authority about a buyout.
The 140-year-old mutual, the UK's 12th largest building society, will confirm that it lost £26m last year after risky investments in the property market. They included £650m in commercial property and £150m in sub-prime mortgages in England. These are thought to have included loans bought from a subsidiary of failed US lender Lehmans and GMAC, the struggling finance arm of General Motors. It also lost £9m on its own IT system.
The chancellor, Alistair Darling, said these losses were so significant that it would need between £60m and £100m from the taxpayer to prop it up, but there was little chance the building society could afford to repay that or even meet the interest payments. He said Dunfermline, which has £3.3bn in assets, had only made £5m-£6m annual profits at most in recent years: last year it made £2m.
Darling, under intense criticism about this decision from Faulds, the Scottish government and opposition MPs, insisted that the FSA and the Treasury had been working intensively to keep the building society in business.
"We've spoken to the regulator for weeks about this and I would have liked to have done something but I couldn't be in the situation where we put money into it knowing that they couldn't even service it or pay it back," Darling told BBC2's The Politics Show.
In an attempt to stop a panic from the Dunfermline's savers when its 34 branches open today, the chancellor insisted that customers' savings were secure and that it remained open for business.
The implication that the Dunfermline was in effect insolvent was rejected by Faulds, who claimed the Treasury repeatedly ignored his requests for direct talks on the society's future.
Willie Rennie, the Liberal Democrat MP for Dunfermline and West Fife, accused Brown of neglecting many of his own voters by refusing to save the mutual. The Dunfermline is based in the neighbouring constituency to the prime minister's seat of Kirkcaldy and Cowdenbeath.
Rennie said other building societies had offered to buy special shares in the business to keep it afloat. "There is an offer from building societies in the UK to keep the Dunfermline as an independent Scottish mutual and the government must take up this offer," he said. "Protecting Scotland's biggest mutual must be worth it. It is Gordon Brown's building society, he must step in to save it."
Faulds said that if the £26m writedown in its commercial property investments was put to one side, the society was due to make a modest profit this year and it was still a healthy, viable business. Instead, the society's 550 staff were now "worried sick" because of this "needless" decision to break the business up.
Faulds praised Alex Salmond, the Scottish National party first minister. The SNP leader "has been absolutely magnificent without looking for any political gain", Faulds told the BBC. Salmond again offered to use Scottish government money as a loan against the Dunfermline's large social housing portfolio. That suggestion has already been rejected by the Treasury, and Salmond appeared to soften his earlier criticisms of the Treasury and FSA by acknowledging that a rescue bid would have been risky.
But he insisted that the Dunfermline could still have been saved. "It would have been in the best interests of the society, the depositors and Scotland if the cash injection route had been chosen," he said.
guardian.co.uk © Guardian News & Media Limited 2009 | Use of this content is subject to our Terms & Conditions | More Feeds
More...
