Nationwide rescues Scottish mutual
Nationwide has stepped in to buy the assets of Dunfermline Building Society after the government refused to offer a bail-out package to Scotland's largest mutual.
The Dunfermline was put up for sale over the weekend after it admitted losses in the region of £26 million. In 2007, the mutual made a £2 million profit, but it has been hit hard by the credit crunch.
Less than 48 hours after putting the society on the market, the Treasury announced that it would take on Dunfermline's £1 billion of commercial property lending and acquired portfolios of mortgages, meaning the taxpayer will bear the brunt of the riskiest aspects of the business.
Meanwhile, Nationwide - the UK's largest building society - will takeover the Scottish mutual's retail and wholesale deposits, 34 branches, head office and originated residential mortgages. It will also take Dunfermline's 530 members of staff on board. The business will continue to run under the banner of Dunfermline Building Society, which is likely to mean little difference for its 300,000 customers.
Dunfermline, the UK's 12th largest building society, is the latest addition to the Nationwide stable, with the mutual giant also recently acquiring both the Cheshire and Derbyshire brands.
Analysts have likened the deal to last year's rescue of Bradford & Bingley, which saw the government take on the building society's riskiest assets and Santander taking on its deposit business.
Chancellor Alistair Darling ruled out a complete bail-out of Dunfermline over the weekend, blaming the mutual's management for its collapse and costing a potential deal at around £100 million of the taxpayer's money.
However, outgoing Dunfermline chairman, Jim Faulds, claims a government input of £30 million would have gone some way to securing the building society's future. He also dismisses claims that it had any debt linked to the US sub-prime market.
Appearing on BBC Scotland's, The Politicis Show, Faulds said he was been "deeply disappointed" by the lack of government intervention, adding that it was not capital that it required but rather access to the official liquidity scheme.
All sub-prime financial products are aimed at borrowers with patchy credit histories and the term typically refers to mortgage candidates, though any form of credit offered to people who have had problems with debt repayment is classed as sub-prime. Depending on the lender’s own criteria, sub-prime can apply to borrowers who have missed a few credit card or loan repayments to people who have major debt problems and county court judgments (CCJ) against their name. To reflect the extra risk in lending to people who have struggled in the past, rates on sub-prime deals are typically higher than for “prime” borrowers.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.