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Dunfermline deal

Douglas Fraser | 14:25 UK time, Saturday, 28 March 2009

Scotland's largest building society is being put on the market by the government, having effectively collapsed.

The Dunfermline Building Society, which ranks as Britain's 12th largest, has been in rescue talks with regulators for weeks, but it has now been decided it will be offered to a bank or another building society to take over the profitable parts of it.

The arrangement is similar to the break-up of the Bradford and Bingley. The savings business in that case was sold to Santander, the Spanish bank giant, while the government took on the troubled mortgages and other loans.

In the case of the Dunfermline, it is not clear how much of the troubled loan book the government will be taking on. That is understood to be subject to negotiations with potential buyers, with the price linked to the extent of risky assets taken over or held back.

The sale is to be managed by the Bank of England, signalling that this is being forced by the tri-partite regulators - the central bank, the Financial Services Authority and the UK Government's Treasury.

A bail-out of the bank was being negotiated, involving between £60m and £100m of government capital injection, and allowing the Dunfermline Building Society to continue as a going concern. But that is now off the table. Regulators believe that would only have put off the point at which a sale would have been forced.

There have also been attempts over recent months to find another building society to take over the Dunfermline, as happened to several smaller English mutuals last year, but these discussions foundered.

It is understood the key problem has been the extent of the Dunfermline's exposure to risky assets. It took unusual risks, for a building society, in the commercial property sector.

It lost at least £9m investing in its own IT business. And it bought mortgage securities from two American finance houses, GMAC and a subsidiary of Lehman Brothers, both of which are now in trouble.

According to a well-placed source, the extent of the Dunfermline's problems are far greater than so far reported - with a £26m loss expected to be made public during next week, but much bigger problems behind that.

It is understood the government's priority is now to protect savers at the Dunfermline, while also safeguarding jobs. The society employs nearly 500 people, half in its Fife headquarters and half in the network of 34 branches.

There is also a stress on protecting the building society's role in lending for social housing in Scotland. The Scottish Government, which has devolved responsibility for social housing, has been in discussion with the Treasury. Chancellor Alistair Darling met First Minister Alex Salmond at Westminster earlier this week, and the two men spoke by phone today (Saturday).

It remains unclear whether the Scottish Government will have a role in taking on the social housing loan book, until the Bank of England's competition for sale of the building society is complete.

There has been no comment from the management of the Dunfermline building society. Its chief executive, Jim Willens, took over the top job in December.


  • Comment number 1.

    I'm truly appalled. This is supposed to be a mutual yet none of the decisions that seem to have got the society into trouble were ever put to the members.

  • Comment number 2.

    The Dunfermline issue highlights the fact that the activities of some of the largest building societies need close scrutiny as it seems they have behaved very similarly to the banks which have got themselves into trouble. What therefore is the benefit of mutuality?? I have today read the annual statements from two very small societies, the Furness and the Vernon - no sub-prime exposure, a positive balance sheet, but even so in the Vernon's case, exposure to losses through investment in Icelandic banks. And there we were thinking they took our savings deposits and lent it to others to buy houses..... Just what is safe and secure these days??

  • Comment number 3.

    Was the BSA asleep? Who is asking questions about the members interests? It would appear that 140 years of members reserves have been wiped out. Time for legislation to protect members interests. The sector has managed to disenfranchise its members and directors appear to be free to take what ever commercial decisions and members are now paying the price.This sector was supposed to be the answer to the problems in the banks. The sector needs a fundamental overhaul.

  • Comment number 4.

    What a disastrous 12 months for Scotland and its major financial institutions.

    The people who have brought these once great companies to their knees should be ashamed of themselves.

  • Comment number 5.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 6.

    I;m looking for some advice. I have a mortgage agreed with the Dunfermline, with the house purchase supposed to go through on Friday. I paid £1000 into the Dunfermline yesterday for the mortgage fee. Will my mortgage go ahead? Have I lost £1000?

    Many thanks

  • Comment number 7.


    No you will not have lost your 1,000pds.

    Because he recognises although will not admit his guilt in this whole shambolic mess that is the UK economy Brown has guaranteed your money up to to 50,000pds.

  • Comment number 8.


    You must be Labour. You can't spell.

  • Comment number 9.

    Hey No.5 what on earth difference does it make whether this was leaked, or who "leaked" it?

    Or are you a Labour Government loyalist who thinks only No 10 and the Treasury can leak things?

    Surprised your snotty comment about the First Minister was allowed by admin on here.

  • Comment number 10.

    Truly staggering again !

    And this was a building society meant to operate as a dull, boring, safe institution for the benefit of its members.

    So who is responsible ?

    And for once, can we please have some action taken against them.

    Faulds, Dalziel, Craigie, McCabe amongst others.

    This society continued to invite depositors to place their money with them at a point when it was undoubtedly insolvent.

    All were at the helm and all need to be held accountable for the truly disastrous consequences they have unleashed.

  • Comment number 11.

    I just saw Jim Murphy MP on the TV commenting on this unfortunate situation. He very plausibly pointed out that this has arisen partly because of worldwide events, and partly because of decisions made by the 'previous management'.

    I am not sure the entire previous management has left the society...but that is not the major omission from Mr Murphy's list.

    Isn't there supposed to be, er, a regulator? Guess who it is? The FSA. When did the FSA take over regulating building societies? 2001. Who was it that introduced this disastrous new regulatory regime? Go on, guess.....

    It took me a few minutes to realise that Labour MPs cannot mention any regulatory failings in the financial meltdown, for fear of someone asking about this.

  • Comment number 12.

    If you take a look at the accounts of DBS it sadly becomes obvious very quickly that it could not have survived. For reasons best known to the old management they took on hundreds of millions in securitised debts, most likely from the USA. With this now being effectively impossible to exchange for cash the writing was on the wall.

    I am still a fan of mutuality however the rules are also too weak. I gather building societies can borrow up to 50% of their funding from wholesale markets, and can invest in commercial property ventures. In my view investing outside the locality and in large commercial projects is not something they should be allowed to do. They should only be allowed to take saving and loans from people who share some form of collective responsibility. A good example is Grameen Bank which lends to those with low credit ratings in poor countries, their repayment rate is in excess of 99%!

    It should be noted the current CEO is not to blame, he only took over a few months ago.

  • Comment number 13.

    we have recently changed our isa savings account to a one year fixed isa. Can we close this account next week

  • Comment number 14.

    This just goe's to show that Scottish banks and building societies got too big for their boots.

    The English government has had to bail out HBOS, RBS and now this sad excuse of a building society The Dunfermline Building Society.

    Doe's Alex Salmond seriously think Scotland can become an independant country when he has to continually come to the English government for help.

  • Comment number 15.

    Perhaps the employees at the Head office and the members could ask their local MP what he intends to do to save their jobs and a key local employer?

    Or they could when he returns from his World Trip or before he trys to save the World at the G20 summit.

    Yes Gordon Brown where are you when your constituents need you?

    There seems a deathly silence from labour bloggers who kicked up a fuss about David Cameron doing charity work in Rwanda when some of his constituents were flooded in 2007 yet nothing about Gordy flying all over the World topping up his air miles when the Dunfermline was going to the wall.

  • Comment number 16.


    Who's a silly billy? You seem to have forgotten that all the UK's financial institutions are regulated by the FSA, the Treasury and of course the BoE.

    All of these are London based and are responsible to the Westminster commissariat.

  • Comment number 17.

    There's no point in trying to blame just one party, be it the London government, the FSA, the Scottish government, or just DBS!
    This is a disaster for all of us, in some respects worse than RBS. I'm sure we all thought the building societies were above the greed and stupidity shown by the bankers. Is there any financial organisation left which we can trust now? I doubt it.

  • Comment number 18.

    You know i am reading all the comments and i am disgraced by so called loyal customers. I work in one of the branches and love my job, we have good products and provide excellent customer service. I agree that our old chief exec made mistakes but we are in a GLOBAL recession, no one was giving us grief when everyone was getting their high interest rates but now we' in a GLOBAL recession everyone blames companies etc.
    You might think we are an awful society but i know we are not, i also know that i may go into work on Monday to be told i have no job!!!!!!!!! your savings are protected, my job is not, and having a family and mortage and not alot of savings like you i will find it hard to survive. If the prospect of loosing my job is not bad we will have customers come into our branch angry and we will receive the brunt of it although we did not make any of the bad decisions.

  • Comment number 19.

    Another Scottish institution needs help from London! As an Englishman I really have had a gutful of being (over)run by the Scottish banks and politicians. Devolution (English) NOW!

  • Comment number 20.

    Post 18. Don't take it personally but people have lost a lot of money, they are scared, their hopes, their houses, their dreams and their old age lie tied up in the car crash that is the UK banking system. They are angry and sadly you are the only person they can articulate their anger at not the directors who made the mess.

    I feel for you as I do for the ladies behind the counter when I go to RBS to pay my credit card bills.

    They like you had no say in actions taken by their management and they are also not sure if their branch is one that will be shut as some surely will. The same applies to an old school friend of mine who has spent 20 years at HBOS starting when Halifax was still a Building Society. He says he lives from week to week.

    Pretty much everyone knows someone personally who has been let go or offshored or downsized or whatever this weeks word is for being made redundant in the current crisis.

    Maybe if the directors had to spend a week in customer service every year they would see the consequences of their actions.

    The problem basically is when they make mistakes they get a big pay off and a huge bonus while the workers get next to nothing.

    For them there is no downside just a big payoff. For you and me it means where is the money coming from to pay our bills and the mortgage.

  • Comment number 21.

    It is a great loss for Scotland and another embarassment. A great Scottish institution has gone to the wall, because of the avarice of the bankers.

    Surely it is time that the board members should be investigated by the polce and prosecuted to the fullest extent of the law.

  • Comment number 22.

    I love how members of this blog state the "English Government" bailed out the Scottish Banks. Since when has the Welsh, Northern Irish and Scottish stop paying tax to the British Government? Since when was the income brought in from these countries not included in the budget?

    Get a grip people, the UK is struggling as a whole!

  • Comment number 23.

    Yet again a UK based financial institution has got heavily involved in the US mortgage market. The first few times this happened, I can accept as coincidence, or in the case of RBS and HBOS sort of like "keeping up with the Jone's".

    But when a regional like DBS gets involved in this market, I start to smell a rat here. Is this a scam? Has someone or some company profited at the expense of taxpayers? If the FSA and Tri-Partite system had done their job...

    Time to set the Serious Fraud Office and the FBI loose on all of this. The old investment adage was not put all your eggs in one basket, seems to have been ignored by the whole financial community - the stench is overwhelming.

  • Comment number 24.

    Brown can now add to his favourite sound bite; " It started in America, and now it's finishing in my constituency " ! But it's not my fault. It was somebody else.

  • Comment number 25.

    Hi All
    i cant see why this bank is worth saving
    when my company was bumped for £70k
    (construction as always ) the banks shut me down ...welcome to the world ...
    there is nobody there to save ya butt....

    o Northern rock took my home to !but as a tax payer im glad they are ok ....(not)

    wish the tax payers had bailed me out


  • Comment number 26.

    GREAT NEWS. Its about time that the Scottish started to eat some of the pie that THEIR UNELECTED LEADER is inflicting on England.

    Why doesn't Alex Salmond raise taxes in Scotland to pay for it?

    The English are fed up with paying for your problems Scotland. Have your independance, and leave us alone to run our own country.

    Take your politicians with you.

    This is not a global recession, its been caused by a Scottish Chancellor, with a government that would NEVER be elected in England.

    Its time for change.

  • Comment number 27.

    The initial blame for this lending fiasco lies with the then Chairman, John Ward, and Dalziel who in 2006 oversaw a huge leap in commercial lending. This recklessnes continued under Faulds who seems only too ready to blame everyone but the supine Board and the Executives responsible.
    The write-offs are in addition to over £9m written off on failed I.T. investment in 2007 and some £2m in each of the previous 5 years. This had already left the Society with the weakest capital position of the top 20 societies and in no position to accommodate huge lending write-offs.
    It s now so weak that there can be no prospect other han that of a break-up a la Bradford & Bingley

  • Comment number 28.

    I do find these anti-Scottish comments irritating and juvenile.

    It's a akin to blaming the fall of the Bradford and Bingley on Yorkshiremen and the fall of Northern Rock on all the Geordies.

    The failures are due to bad management, not to the names carried by the institutions involved.

    Maybe we should start blaming the Queen for the fall of ROYAL Bank of Scotland.

    It would be just as daft and unjustified.

  • Comment number 29.

    Number 22 you just dont get it do you?

    >Since when has the Welsh, Northern Irish and >Scottish stop paying tax to the British >Government? Since when was the income >brought in from these countries not included >in the budget?

    ALL countries apart from England are net TAKERS of money you fools. So what if they pay in? They get more back. ONLY England pays in more to the budget than it gets back.

    Number 16 you are the silly billy.

    >All of these are London based and are >responsible to the Westminster >commissariat.

    DER! Run by SCOTTISH politicians you fool.

  • Comment number 30.

    My brother has £253,000 in The Dunfermline. We have to wait and see how much of that he'll get back tomorrow. Gordon Brown says savers "Will be protected". I wonder.

  • Comment number 31.

    After reading some of the comments relating to anti country sentiments, I wonder if the UK has actually been used to further the Empire across the pond, "Divide and Conquer".
    Welcome to the new look Divided Kingdom PLC.

  • Comment number 32.

    26 - newEnglishPatriot - Thank you for your constructive input. The only change that is needed at the moment is your bad attitude.

  • Comment number 33.

    As with other "done deals" there is probably more of the story to come yet. Was the KPMG report as favourable as has been made out? Was there a serious enquiry from a Scottish Consortium to buy out the Dunfermline? If so what real consideration was given to either by the Board or A Darling?

    It is worth remembering that politicians are adept at making the best of even the worst situations. Brown and Darling opted for the wider stage of Westminster and beyond rather than use their dubious talents in Scotland. It is just unfortunate that Dunfermline is squarely in Brown`s territory and next door to Darling`s. The electorate will not remember who saved their savings they will remember who almost ruined them.

    Goodwin today New Labour and Old Tories tomorrow.

    We are all paying the price for greed.


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