There’s never been a worse time to invest in Scotland by the looks of it, as the country’s financial sector faces meltdown and collapse, primarily due to poor regulation which allowed banks, building societies and other financial institutions to do as they pleased with clients money and huge levels of unsustainable debt.
Today, its the turn of the now collapsed Dunfermline Building Society, which had to be rescued by Westminster & the Bank of England, after long winded deals talked about by the Scottish Government came to nothing … (SG deal would never have worked anyway ! – Ed)
Scotland on Sunday reports :
Published Date: 29 March 2009
By Eddie Barnes Political Editor
SCOTLAND'S beleaguered financial sector suffered another body blow last night after it emerged the nation's biggest building society has effectively collapsed and will be put up for sale this week.
The Dunfermline Building Society seems certain to be merged with another institution after attempts to prop it up with a taxpayer bailout were judged to be doomed.
Taxpayers will take on millions of pounds' worth of the Dunfermline's 'toxic assets', while profitable parts of the society will be offered to a new buyer.
The deal is a further dent in Scotland's reputation as a centre of financial probity, coming so soon after HBOS was merged with Lloyds and Royal Bank of Scotland was part- nationalised.
Last night, SNP ministers said they were "disappointed" with the Treasury decision to back a merger, while the local Liberal Democrat MP warned that the plan puts "hundreds of jobs" at risk.
The Dunfermline deal will mirror that which saw Bradford & Bingley split up last year and sold to the Spanish Santander group. Government officials claimed the move would not lead to job cuts and insisted that the building society's 250,000 savers and 35,000 borrowers would not be affected.
Chancellor Alistair Darling yesterday morning informed First Minister Alex Salmond about the plan. Prime Minister Gordon Brown, speaking in Chile yesterday, pledged that savers in the building society would be protected.
Scottish Secretary Jim Murphy blamed "reckless" decisions by the Dunfermline's previous management for its position. Last night, Murphy said: "The Treasury wanted a long-term, rather than a short-term, solution for the Dunfermline. The Government's priority is to protect savers, jobs and social housing and keep the society's branches in place while putting an end to uncertainty."
He added: "The solution should provide a stable and secure future for Dunfermline Building Society members and is one which acts in the best interests of the taxpayer."
The Dunfermline has been on life support after it emerged two weeks ago that it was about to make a significant loss as a result of writedowns on property investments made before the credit crunch. A disastrous IT project also cost millions. Well-placed sources suggested last night that those losses – predicted to be around £26m – were actually going to be far higher.
It was hoped that the building society could continue with funding from the Government of between £60m and £100m. But UK Government sources said yesterday that as the true scale of its losses became clear, regulators decided that the only "permanent solution" would be a merger.
No partner has been formally announced, but the Co-operative, Britannia, Nationwide and Yorkshire building societies have been linked to the Dunfermline in recent weeks. As with the HBOS takeover by Lloyds, there was mounting concern last night that the head office functions of the society would be lost by Scotland.
Salmond had proposed a package in which the Scottish Government would boost the Dunfermline's capital and guarantee its valuable social housing book. That deal remained on the table last night, but the Treasury insisted it would be pressing ahead with a merger.
A Scottish Government spokesman said last night: "We are deeply disappointed that the Treasury now believes it is not possible to sustain the society as an independent institution, given the importance to Scotland of HQ jobs and functions."
He added: "We hope that the Treasury has not closed its mind to the idea that, both in terms of employment and in terms of value for money for the public purse, maintaining Dunfermline Building Society as an independent and ongoing concern could well be the strongest option, and in the interests of its members and depositors."
Lib Dem Dunfermline MP Willie Rennie said: "Forcing the break-up of the Dunfermline Building Society would be a betrayal of its thousands of savers and borrowers over 130 years."
Other mutual societies could still step in to keep the Dunfermline afloat, Rennie insisted. "I ask the Government at this late stage to defend Scotland's largest mutual. If ministers refuse, this could put hundreds of jobs at risk."
There was no comment from the society last night. Senior staff were understood to have been taken by surprise by the sudden announcement.
The news of the Dumfermline's effective collapse comes six months after its troubles were first unveiled. In September, it announced it was to cut a fifth of its workforce in the wake of falling mortgage sales. In December it said it expected this year to be "difficult".
The Dunfermline was one of the last lenders to pull out of the 100%-plus loans market, while it also had a considerable exposure to buy-to-let loans and lending to commercial property borrowers. While on a far smaller scale to HBOS and RBS, the 130-year-old mutual is still one of the country's main financial brands.