What next for Dunfermline customers?
The news that Nationwide is to take over the Dunfermline Building Society won’t be a massive shock for Scotland’s largest mutual’s customers. For several weeks speculation has been rife that the 140-year-old society has cash-flow problems.
Over the weekend the issue reared its head, with the Treasury making the decision to put the Dunfermline up for sale. Chancellor Alistair Darling ruled out a complete bail-out, blaming the mutual's management for its collapse and costing a potential deal at around £100 million of the taxpayer's money.
Instead, the Treasury will take on the Dunfermline’s £1 million commercial property book as well as its acquired mortgage portfolio.
Nationwide, meanwhile, will take over its retail and wholesale deposits, its 34-strong branch network, head office and organic residential mortgage books. It will also take Dunfermline's 530 members of staff on board.
But what does the move mean for the Dunfermline’s 350,000 customers? And what does the future hold for the society’s brand in Scotland?
The Dunfermline, currently the 12th largest building society following a series of mergers within the mutual sector, has more than 350,000 customers. Its 2007 results show that, of these, 35,000 are mortgage borrowers and 249,000 are investors. A further 7,500 are depositors.
Following the collapse and break-up of the Dunfermline, the Bank of England insists it is business as usual for all customers.
Savers and other depositors will not see any changes to their accounts. Nationwide says the 140-year-old brand will continue to operate as normal and it has, so far, not announced any branch closures.
It is likely, however, that Nationwide will close branches where they are in close proximity to its own outlets.
So, anyone wanting to access or get information about their money will continue to be able to do so at branches and via Dunfermline’s telephone banking system.
Mortgage and loan borrowers will also see no immediate change to their accounts. The most important thing to remember is that you must continue to make all due payments as normal.
But is my money safe?
Nationwide has taken over Dunfermline’s deposit business; this means that Dunfermline savers are just as safe as those with the larger society.
Under the Financial Services Compensation Scheme (FSCS) every individual is protected up to £50,000 per bank (£100,000 for joint accounts). If a bank were to fail, and you had more than £50,000 in an account or with a specific bank or building society, then you might not be able to claim a refund for all money over the threshold.
Savers with more than £50,000 are, therefore, recommended to spread this across as many different organisations as needed.
However, bear in mind that, so far, the Treasury has made sure all depositors with failed banks, such as Icesave, have received 100% of their money back. It also seems unlikely that the government will allow any British bank to fail.
The FSCS says all amounts held by retail depositors in Dunfermline have been safeguarded by being transferred to Nationwide, not just the first £50,000 of a customer's deposits, which would have been ordinarily protected by the FSCS.
Loretta Minghella, chief executive of the FSCS, says: “This action by the Tripartite authorities working with the FSCS means that Dunfermline’s customers can continue to use their accounts in the normal way without having to claim compensation from the FSCS.”
There is a big gap in the protection the FSCS offers; its protection limit is per customer per bank. So, if you have more than one savings account with the same authorised firm, then your total balance will be taken into account when compensation is being issued.
While it’s relatively simple to have more than one account with two or even three different banks, this is just the tip of the iceberg. In the UK, many banks – while having their own, individual brands – are actually part of the same group and in some cases are regulated by the Financial Services Authority (FSA) as one bank.
Unlike banks, building societies that merge are legally required to operate as a single entity with just one FSA license.
However, in light of the banking crisis, the FSA recently introduced new rules that offer extra deposit protection for building society savers when mergers occur. Between 1 December 2008 and September 2009, building societies that merge will be able to keep their separate compensation limits.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.
The Financial Services Compensation Scheme is the compensation fund of last resort for customers of authorised financial services firms. If a firm becomes insolvent or ceases trading, the FSCS may be able to pay compensation to its customers. Limits apply to how much compensation the FSCS is able to pay, and those limits vary between different types of financial products. However, to qualify for compensation, the firm you were dealing with must be authorised by the Financial Services Authority (FSA).
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.