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Nationwide is given £1.6 billion to rescue building society
Hugo Duncan and Nick Goodway30 Mar 2009
Nationwide Building Society today took control of the healthy parts of failed rival Dunfermline after the taxpayer stumped up nearly £1.6 billion to rescue the Scottish firm.
The UK's biggest building society snapped up Dunfermline's 34 branches, £2.5 billion in retail and wholesale deposits and £1 billion prime mortgage book.
But Nationwide only agreed to take part in the deal if the Government plugged the £1.5 billion gap between the deposits and the mortgage book.
Nationwide was also paid a £68.8 million fee by the Treasury.
The collapse of Dunfermline just days before the G20 summit was an embarrassment for Gordon Brown, whose constituency neighbours the building society's headquarters.
The Prime Minister said: “Let's face facts — the Dunfermline Building Society is the author of its own mistakes: mistaken judgments, mistaken investments, mistaken policies.”
The deal, signed minutes before it was announced at 8am today after a weekend of frantic negotiations, was the sixth rescue of an ailing building society in the last four months.
It was the first under the Special Resolution Regime introduced in the Banking Act 2009, which set out new rules for financial rescues following the botched bailout of Northern Rock, and came after the Financial Services Authority decided on Saturday Dunfermline was bust. It is to post losses of £26 million this week.
The Scottish society's board quit today as the Bank of England moved to reassure Dunfermline's 300,000 members.
“It is business as usual for all customers,” the Bank said. “Dunfermline's deposit business will continue to operate normally. Branches and telephone banking will continue to open during their normal hours and customers can deposit and withdraw their money in the usual ways. Savers can be assured that their money is safe.”
Dunfermline's £470 million social housing unit was transferred to the Bank of England while more risky areas of the business — including £648 million in commerical property loans and £274 million of subprime mortgages picked up from Lehman Brothers and GMAC — was put into administration.
Losses related to the risky loans could hit £100 million but will be covered in the main by the Financial Services Compensation Scheme, protecting the taxpayer from heavy losses.
Nationwide today said the 140-year-old mutual would keep its name, just as it did after it rescued the Cheshire and Derbyshire building societies in December, but warned there could be job losses.
Reader views (9)
WE ARE RULED BY THE FEW AND GOVERNED BY THE NAIIVE.
PEOPLE SHOULD REALLY WAKE UP AND NOT JUST ASK THE QUESTIONS BUT GET TRUTHFUL ANSWERS. IF THIS IS POSSIBLE FROM CORRUPT POLITICIANS.
I REST MY CASE.!
- Mr. T.Pickering, NOTTS, ENGLAND, 01/04/2009 13:15
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Its Scotish so no need to say more!!
- Mike, London England, 31/03/2009 08:17
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"IT'S ONLY MONEY"?.
- John., Scarborough N.Yorks U.K., 30/03/2009 22:10
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Nationwide Members should have been consulted about this acquisition and if/when Nationwide goes belly up like Lloyds did after eating the poisonous fish Halifax , then Senior Executive pensions & assets will have to be confiscated to begin with and an action in negligence against the perpetrators commenced. How many duff Building Societies do Nationwide Building Society Managers think they can swallow ?
- Frank, UK, 30/03/2009 15:37
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I think the hidden message is even more insidious. Dunfermline saveable with a £40m loan but Nationwide receives £1.6b to buy it. It’s certainly one way of ensuring the rebel Scots stay with the union rather than go it alone – they no longer have a financial system to sustain them, having already lost BoS and HBoS to English institutions. Interestingly, the Scottish Government was refused permission by Westminster to raise the capital to save the Dunfemline. A high degree of mismanagement by a financial institution but no worse then elsewhere. Perhaps it's the politics you also have to question.
- Scepticsue, Cambridge, 30/03/2009 15:36
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Mistaken judgements/investment/policies surely Mr Brown is talking about his time as Chancellor and now PM.
- Chris, Woking. UK, 30/03/2009 14:55
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nationwide is fast becoming the only name on the high street in the fiscal sector as it mops up all the spilled milk from those other societies that fall by the wayside.
ultimately the strengths of anything are its weaknesses and big is not necessarily beautiful.
- M.O'Brien, london.uk, 30/03/2009 14:51
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A senior executive was on the radio yesterday evening and the Dumfermline seemed saveable with a £40m loan. Or is there a hidden agenda going on - i.e. does the government only want a couple of banks/building societies so it has ever more contol over the citizens of the UK?
- Michael, London, 30/03/2009 12:33
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The 2007 accounts were signed off in Feb 2008 and Northern Rock had already happened by then i.e. not a time to take chances. They wrote off 9m of profit due to a foray into a new computer system but overall non residential lending was not massive. As its public money at stake why can't we know what the current situation is.
- Jack Spratt, Richmond, England, 30/03/2009 09:49
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