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Near-collapse of Dunfermline building society raises questions over risk to lenders thought to have avoided worst of credit crunch
The near collapse of Dunfermline building society and its partial rescue by Nat*ionwide has cast a shadow over a sector that tried to stand apart from the crisis ripping through finance houses.
Adrian Coles, of the Building Societies Association, insisted last night that he knew of no other society in the same mess as Dunfermline, which is facing a £24m loss after increasing corporate lending by 400% in the peak years of 2006-07 and needs a £60m capital injection to stay afloat.
When Moody's rating agency carried out a health test of the sector in January, Dunfermline was one of the worst ranked, but it also raised concerns about Newcastle, Nottingham, Principality, Scarborough and West Bromwich.
The BSA's data yesterday showed that mortgage lending swung into reverse in February with more paid back than was lent out. Savers are descending on the sector, depositing £1.6bn in February – the most ever recorded for that month.
The sector had wanted to find its own solution for Dunfermline, in which six or so of its largest members would back the society. But in the end Nationwide, the largest society, took on the savings accounts and left the more troubled assets to be nationalised.
But some experts were wondering whether Nationwide, which has already merged with Portman, Cheshire and Derbyshire in the last two years, would be able to keep stepping up. It too has been affected by the crisis. At its peak, Nationwide was *taking 31% of its funding from wholesale markets as opposed to deposits – lower than Halifax's 50% but highly uncomfortable when banks stopped lending to each other.
"It can't be the lender of last resort," said Andy Golding, chief executive of Saffron building society. "Graham Beale [chief executive] has a commercial business to run for the benefit of his own membership."
Nationwide is following a back-to-basics approach, pledging that it will lend out, broadly speaking, only what it brings in from savings accounts. In normal times this would still make it a major player in the mortgage market. But in private it acknowledges that it is suffering as security-obsessed savers move money into National *Savings and Northern Rock, attracted by the government guarantee.
Golding admitted the Dunfermline problems "will undoubtedly place a cloud over the sector". But he remains optimistic.
"The thing that struck me over the last 12 months is the loyalty and trust that building society members have. I think the sector has legs and will come out of it stronger – and probably a bit leaner and fitter."
- Banks and building societies
- Dunfermline building society
- Nationwide
- Financial crisis
- Savings
- Recession
- Mortgages
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