Dunfermline sale 'was only option'

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Nationwide Building Society will buy salvageable parts of Dunfermline under the deal and State cash will cover its hefty liabilities.

Reckless lending led Scotland's largest mutual to the brink of collapse with annual losses of more than £24 million before the Government was forced to step in.

Chancellor Alistair Darling, who said his children have savings accounts with the Dunfermline, claimed the Government was left with no other option but a sale and break-up of the 140-year-old institution, which is the UK's 12th largest building society.

The deal will see the Dunfermline brand remain intact and all 530 staff and 34 branches will transfer to Nationwide. However there may be some redundancies from the acquired back office and support operations.

Dunfermline racked up more than £800 million of high-risk loans and assets after snapping up commercial property of more than £650 million at the height of the market which has since crashed.

It bought some £150 million of risky self-certification loans from two US institutions including the now bankrupt investment bank Lehman Brothers.

Prime Minister Gordon Brown defended the Government's action to step in and orchestrate a sale and break-up of the society over the weekend. He said: "Let's face facts - the Dunfermline building society is the author of its own mistakes: mistaken judgments, mistaken investments, mistaken policies.

"We have had to step in where the Dunfermline building society has failed, and we have stepped in in such a way that we can protect both the savers and give those people who depend on the building society for mortgages a way through for the future."

The Treasury paid £1.6 billion to Nationwide as part of the deal, effectively as compensation for liabilities not covered by Dunfermline's assets. The Bank of England has taken on another estimated £500 million of Dunfermline's social housing loans that were not included in the deal.