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Nationwide has stepped in to buy up part of the collapsed building society after the government declined to prop it up with state aid
Nationwide has taken control of much of the Dunfermline Building Society, which has collapsed under its unsustainable debts after the government declined to bail it out.
Under a deal announced this morning, Dunfermline's retail arm and its £1bn book of healthy mortgages have been sold to the Nationwide Building Society following negotations with the Bank of England.
However, Nationwide has refused to take ownership of the high-risk assets, such as self-certification mortgages made at the height of the housing boom. These will now transfer to the taxpayer, to sit along the bad loans made by Bradford & Bingley.
Graham Beale, chief executive of Nationwide, said the deal would safeguard the savings of 300,000 Dunfermline account holders.
"This is good news for the members of Dunfermline who are now joining the world's largest building society," said Beale. "As members of a solid, stable and dependable organisation, members of Dunfermline can be assured that their savings are safe."
Some job cuts also seem inevitable, after Nationwide warned that "some back-office and central group functions of Dunfermline will no longer be required".
But Dunfermline's chairman, Jim Faulds, claimed this morning that the 140-year-old mutual could have been saved if the government had given it a loan via its liquidity scheme.
"The Treasury didn't want to take the risk ... we could have had a sustainable, independent future," he claimed.
But Alistair Darling warned yesterday that Dunfermline, the UK's 12th largest building society, was effectively insolvent.
Dunfermline's problems lie at the heart of the credit crunch which has brought havoc to the financial sector. Its property investments include £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.
Darling said these losses meant Dunfermline would have required between £60m and £100m from the taxpayer to prop it up - which it would have struggled to repay. 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.
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