Building society left 'technically bust' following disastrous commercial property losses

Building society left 'technically bust' following disastrous commercial property losses




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The largest and oldest building society in Scotland, Dunfermline, has been exposed by papers as being on the brink of an emergency Government bailout, following huge losses on its commercial property and residential loan books.

Dunfermline could announce a loss of £26 million this week. The Government is now expected to hand over £60 million in order to avoid a run on the mutual, which is already being dubbed ‘Scotland’s Northern Rock.’
It has been said that Dunfermline now has negative net value, as its troubled mortgage portfolios account for over a third of the building society’s £3 billion of assets. The auditor, Deloitte & Touche has refused to sign off its 2008 accounts, expressing concern that Dunfermline is “insolvent.”
However, other building societies appear reluctant to step in and take over the ailing firm, despite encouragement from the FSA to do so. Nationwide has already rescued Cheshire and Derbyshire in recent months and has been warned by ratings agency Standard & Poor’s that its outlook would be further downgraded from “negative” if it swooped on another struggling society.
There are a number of options in how Dunfermline could be dealt with – it will either be recapitalised by the Government with a £60 million cash injection, split into a “good bank” for deposits and a “bad bank” for its mortgage book by an administrator, or its savings side could be handed over to a competitor whilst the Government takes over its mortgage book.
The building society has over 250,000 savers, 35,000 borrowers and 34 branches in the UK, employing nearly 500 people.
The chair of the Treasury select committee, John McFall, said last night: “The government can't afford to let the Dunfermline Building Society go, if for no other reason than confidence in the financial system. Confidence is at an all-time low at the moment and it would just be shattering if that happened. So the government will stand behind this building society.”  

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