Tuesday, March 31, 2009

Scottish led offer for collapsed 'reckless' Dunfermline was refused

While the bickering over the collapsed Dunfermline building society continues, with who did what or offered how much & when doing the rounds, the Nationwide has taken over DBS after intervention from the FSA & Bank of England.

Its a pity DBS collapsed, but protracted discussions and talk of offers doesn't always amount to a deal ... (lessons to be learned for next time ? – Ed)

The Scotsman reports :

Scottish rescue bid for DBS 'was blocked'

Published Date: 31 March 2009

COLLAPSED building society Dunfermline was offered a possible merger with a Scottish-led consortium just weeks ago, it emerged last night.

Scottish Friendly Assurance revealed an initial approach was made in the middle of this month to the ailing mutual, which was taken over by the Nationwide yesterday.

But there were claims the possible rescue bid was effectively blocked on "numerous" occasions. News of the secret approach was revealed as details emerged of the reckless spending that led to the emergency rescue of the Dunfermline by Nationwide.

The Scotsman has learned the Dunfermline offered loans of up to £20 million to an "insolvent" property firm in Lancashire, which then used the cash to provide 100 per cent mortgages on rundown terraced homes in the north of England. This was typical of about £800 million of investments made by the Dunfermline.

The building society was put up for sale on Saturday by the government after a Treasury bail-out was ruled out.

But Scottish Friendly claimed last night that the consortium had made several attempts to open negotiations with Dunfermline officials, but were not given an opportunity to meet them until Sunday, the day after it had collapsed.

In a statement, Scottish Friendly said: "Although numerous attempts were made to open exploratory negotiations with DBS, we were not given an opportunity to meet with them until Sunday, less than 24 hours before a deal was announced.

"While we are of course pleased that the position of DBS members has been secured, the announcement of (the] deal with the Nationwide precludes a Scottish-led solution that may have been a possibility if talks had been agreed between the consortium and DBS at an earlier stage in the process."

Stewart Hosie, the SNP's Treasury spokesman, said last night: "The possibility of alternative bidders – including a Scottish-based bid – that could have seen HQ functions and jobs remain in Scotland is something that all parties should have been aware of prior to the deal with Nationwide.

"The revelations over a possible bid from Scottish Friendly and the speed at which decisions appear to have been made only add to the list of questions the Treasury and the FSA (Financial Services Authority] must answer.

"Once again, a Scottish institution appears to have been sold off in haste without a thorough examination of the options. The FSA, the Treasury and the Dunfermline must reveal what offers where on the table and when."

Jim Willens, the outgoing chief executive of DBS, who will resign in the wake of the Nationwide deal, said: "I am not in a position to comment on any individual approaches. What I can say absolutely 100 per cent is that any proposition or proposal put to the society was looked at thoroughly and immediately."

Alistair Darling, the Chancellor, yesterday announced the government was sinking more than £1.6 billion of taxpayers' money into rescuing the Dunfermline.

Nationwide is to buy all of its branches, "good" loans and deposits, although the brand name will remain. However, it said some of the society's 530 employees "may not be required".

As the Prime Minister branded the stricken mutual the "author of its own mistakes", there was cross-party condemnation of the Dunfermline's board – and demands for an explanation as to why the City watchdog, the FSA, had failed to intervene as the building society's risk-taking increased.

Mr Darling called on Lord Turner, the FSA chairman, to explain its role in supervising the Dunfermline. There was also pressure on the outgoing Dunfermline chairman, Jim Faulds, and the former chief executive, Graeme Dalziel, who left the company last December.

Since 2006, the society had shed its reputation as a safe haven of 140 years' standing to embark on risky investments, such as the purchase of self-certified mortgages from two US firms – one a subsidiary of collapsed bank Lehman Brothers – and to lend to commercial property firms.

Vince Cable, the Liberal Democrats' Treasury spokesman, told MPs the Dunfermline board had been guilty of "disastrous management" and a failure of oversight in allowing it to run up a £24 million loss for 2008.

That required the Treasury, Bank of England and FSA to put the rescue package in place which has resulted in the Dunfermline's staff, retail and wholesale deposits, branches, head office and original residential mortgages being transferred to the Nationwide.

A "bridge bank" has been set up to oversee its social housing portfolio in Scotland, while accountancy firm KPMG has been appointed to sell off commercial loans, which will be used to help repay the £1.6 billion to the taxpayer.

Mr Cable told the Commons DBS made a £10 million loan two years ago to Lancashire property firm In House plc – a company that was "loss-making, insolvent and had never filed any accounts".

He added: "There were substantial numbers of loans of this kind taking place. Is this not an absolutely gross failure of regulation by the FSA? It's very difficult to see how this could have happened under the old building society regime, which kept a much closer eye on the conduct of these societies."

Papers seen by The Scotsman suggest that In House used the 2007 loan to provide 100 per cent mortgages on multi- occupancy or rundown terraced homes in Hull, Stockton and Lancashire, and an industrial unit in Scotland.

A year later, it obtained a second £10 million loan from the Dunfermline, and it has withdrawn some £3 million to £4 million for similar lending. About 25 of the properties are said to be uninhabitable because of the amount of repairs required. The firm could not be reached for comment last night.

Mr Cable, Mr Darling and George Osborne, the shadow chancellor, were united in condemning the failures of the mutual's board and its decision to purchase more than £150 million of self-certified loans from the two US firms – GMAC and the Lehman subsidiary – and embark on £650 million of commercial property lending.

Mr Darling said the Dunfermline's toxic investments were made shortly before the credit crunch that led to the collapse of the residential and commercial markets. He added that the Dunfermline was now losing money as a result of firms collapsing or defaulting on repayments.

Mr Darling said Nationwide had promised there would be no compulsory redundancies for the next three years for the 345 staff of the Dunfermline's 34 branches in Scotland. However, he could give no guarantee for head office staff.

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