Dunfermline Building Society to reveal huge loss

**Annie Shaw** · #1 20-03-2009, 08:45

ONE OF Scotland's oldest building societies, the Dunfermline, is on the brink of unveiling a significant financial loss, exposing another of the country's great financial institutions to the threat of a takeover.

The 130-year-old mutual, which has about 240 staff, has been plunged into turmoil through its exposure to the beleaguered commercial property market, The Scotsman has learned.

It is understood the society will reveal an expected loss of about £26 million in the next few weeks, compared with a £2 million profit last year. That has forced it to consider submitting to a takeover by a larger society.

Scotsman

Ex-"Standard Lifer" Scott Bell was on the board until his death in August 2007. At least he's not around to see Dunfermline taken over in some kind of desperate rescue, having had to watch Standard Life demutualise after failings on his watch.

See the full story on our Main Site:

http://www.cashquestions.com/dunferm...-26m-loss.html

**Annie Shaw** · #2 21-03-2009, 20:07

Skipton tipped to be mounting a rescue - if the Scots Nats don't get there first.

**Annie Shaw** · #3 22-03-2009, 18:36

The Government is planning a £60 million bailout of Dunfermline building society amid fears the bank is poised to reveal huge losses, it was reported.

Dunfermline, which is one of Scotland's oldest and largest building societies, is understood to be in line for the State rescue as concerns mount that financial woes could prompt a run on the mutual.

The building society is "technically bust" as a result of losses incurred in its commercial property and residential loan books, according to the Mail on Sunday.

**Annie Shaw** · #4 25-03-2009, 12:16

From the thisismoney website:

I supervised building societies at the FSA in the run up to the credit crunch. I am surprised more of these problems have not emerged sooner; much worse is to come. My experience convinces me that the entire movement is not a safe haven of stable, prudent on-balance sheet lending as popularly believed, but is instead facing incipient crisis. The problem is essentially one of poor asset quality attributable to ill-conceived "diversification" strategies which led these unsophisticated firms into areas such as large-scale commercial lending, residential sub-prime and self certified mortgages, and the purchase of mortgage loan books from wholesale lenders. Building societies did not understand the risks, and it is to the eternal discredit of the FSA that they were not stopped. In my time, the FSA's shockingly lax approach was justified by the complacent assumption that big fish would always bail out minnows "for the good of the movement". That assumption has been proven to be wrong.

- Stuart, Surrey
Posted: 23 March 2009, 11:37am

**Annie Shaw** · #5 25-03-2009, 12:49

So if Dunfermline isn't rescued by another society, will it be a Government bailout like Northern Rock, or will they do something tricksy with the Co-op?

There are a few Scottish Co-op MPs knocking about
Ian Davidson
Mark Lazarowicz
Thomas McAvoy
John McFall

Adrian Bailey, head of the all-party mutuals committee, is a Co-op MP; Sarah McCartney-Fry has good Scottish Co-op heritage. Gareth Thomas, who masterminded the Industrial and Provident Societies Act through Parliament, is Chair of the Co-operative Party.

So - a fair few Co-op members with a stated interest in building societies.

**Annie Shaw** · #6 25-03-2009, 15:41

Apparently the plan is PIBS, being touted round other societies. Er, dream on!

**Annie Shaw** · #7 25-03-2009, 15:46

And what's going on at the Cumberland?

From the BBC website:

Many of the so called conservative mutuals joined the feeding frenzy for toxic mortgages. Examples include Cumberland Building Society, who set up a subsidiary company called Solway Mortgages to place any low-grade mortgages their branches could not under-write, including applicants wth mutiple CCJs, bankrupts and those who had previoulsy fallen foul of losing a home through possession. I do not like the banks but neither can building societies be two-faced. Such lenders promote one image to the press and public and then do exactly what they criticise others - hypocrites. what is going to happen when these toxic mortgages products mature - I am sure the likes of the CBS will not bail them out with a prime CBS mortgage. they will unfortunatley be left to potentially add to an increasing volume of posessions nationally. The morals of mutuals should not be seen in the same light as older generations from that sector - many of their management are ex-banking and retail/sales driven just like the rest. Sad but true of many of them. Why has the above never been picked up by the press, because for many years local building societies have worked closely with the local press and often provided a tangible % of their advertising income stream - hands that feed and biting come to mind!

**Annie Shaw** · #8 26-03-2009, 09:51

More on Dunfermline and the possibility of PIBS in today's Scotsman

Quote:

TREASURY ministers are hoping some of Britain's biggest building societies will intervene to rescue the troubled Dunfermline Building Society, The Scotsman has learned.

Talks have been going on for weeks between ministers, financial regulators and other building societies over its problems.

The society has had to write off millions of pounds due to the collapsing commercial property market and is expected to announce losses of £26 million. It needs capital to help it survive.

One possible solution, which ministers appear to be backing at this stage, would involve the Dunfermline issuing Permanent Interest Bearing Shares.

These have been used by building societies in the past to raise capital and are fixed rate securities issued and quoted on the stock market.

Dream on, I say again!

**Oggy** · #9 26-03-2009, 12:01

Yeah, but PIBS in general are excellent with the bank rate really low.

Man BS 8% PIBS suits me!

Paid tax free too!

**Argentarius** · #10 26-03-2009, 22:14

I agree that PIBS are quite a good investment. The real risk of losing money is small - because someone will be made to rescue any failing financial institution.

I can't see why people would buy Dunfermline PIBs though - they would have to pay a huge yield for people to be interested given that the yield on better quality ones is so high.

And so, the cost to service them would be huge for Dunfermline. And they were not making money anyway!

**Annie Shaw** · #11 28-03-2009, 19:54

Scotland's largest building society is to be put on the market by the government after it effectively collapsed, BBC Scotland has learned.

It was hoped the Dunfermline could continue with a government bailout of between £60m to £100m.

However, the regulators have decided it is no longer viable, with a £26m loss expected to be announced next week.

The Scottish Government said it was "deeply disappointed" that it could not continue as a going concern.

BBC

**Annie Shaw** · #12 28-03-2009, 20:10

Scotland's largest building society is to be broken up after the government refused to bail out another financial institution and instead decided to put it on the market.

The Dunfermline Building Society had been in rescue talks with financial regulators for weeks but the Treasury decided today it had no future, bringing down the curtain on its 140 years of independence.

Like Bradford & Bingley, it is expected to taken apart with profitable parts sold to another bank or building society and the government left to take on the "toxic loans" that felled it.

Guardian

**Batsman** · #13 29-03-2009, 19:43

Jim Faulds, chairman of the Dunfermline, today accused the Treasury of "sacrificing" the business, and "faceless mandarins" of refusing to talk to the society about saving it.

The Treasury ruled out a government bail-out after the regulators said the move was not realistic, and insisted the Dunfermline should be sold. The Government hopes to announce a buyer tomorrow. There are four potential bidders: two banks and two building societies.

The Scottish Government had offered to help keep the Dunfermline going, but that would require Treasury approval.

Speaking on BBC Scotland's Politics Show, Mr Faulds said government funding of £20m-£30m would help secure the Dunfermline's future, while dismissing claims that the society had debts linked to the toxic US sub-prime mortgage market.

Chancellor Alistair Darling said the society needed between £60m and £100m to keep it going.

Mr Faulds said that, if left alone, the Dunfermline would have been able to report a small operating profit for 2008, while putting some money aside to resolve issues with its troubled commercial loan book in the coming years.

He welcomed Mr Darling's assurance that members' money would be safe, but added: "My worry now is the staff. There are people, families, 550 employees sitting at home worried sick about their jobs."

**Argentarius** · #14 29-03-2009, 22:57

I don't think the figures add up here, somehow.

They only made £2m last year. That was itself 61% down on the year before.

They are rumoured to be incurring over £20m of write-offs.

Like all other societies, they are also getting stuffed by the FSCS payments.

How exactly were they going to report an operating profit? Perhaps an "operating profit before absolutely huge exceptional items, some of which are going to recur".

I think they are genuinely stuffed.

I am honestly surprised that 2 building societies are interested.

**Annie Shaw** · #15 30-03-2009, 06:40

Quote:

The plan is for another bank or building society - two of each have been involved in talks - to buy the healthy parts of the Dunfermline and provide reassurance to savers, while the government takes on the riskier loans and investments.

Between commercial property and mortgage securities, that exposure could run to £800m.

BBC Scotland

The Guardian reports: Jim Faulds, who accused the government of "sacrificing" the society, confirmed that the mutuals Nationwide and Britannia, along with two banks, rumoured to be HSBC and Barclays, had been in talks with the Financial Services Authority about a buyout.