Nationwide brings Dunfermline back from brink...but leaves taxpayers with £1billion bill

Nationwide Building Society has taken ownership of integral parts of the 140-year-old institution, including its retail and wholesale deposits, branches, head office and most of its residential mortgage book.

The deal, which follows a sale process led by the Bank over the weekend, comes after the Government refused to bail out the troubled Scottish mutual society after it incurred losses of £26m.

But the part-rescue means taxpayers will have to pick up the tab for a reported £1 billion of risky debt.

Today the Bank of England stressed it was “business as usual for all customers” and that all saver deposits were safe.

The Nationwide confirmed that the Dunfermline brand would remain intact after the deal.

But the remaining parts of the building society not included in the takeover - including riskier assets and debt such as commercial loans and some residential mortgages - have been placed into administration.

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The Bank of England said it used new powers under the Banking Act to rush the deal through, which would otherwise have seen Dunfermline - Scotland’s largest building society - go bust.

However, the taxpayer has picked up a £1 billion bill paid to Nationwide to cover liabilities not covered by the assets it is acquiring.

Today Gordon Brown defended the huge bill for taxpayers, adding that the bail-out was the only way to protect savers.

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.”

Speaking minutes before the Nationwide deal was announced, Dunfermline chairman Jim Faulds said he “warmly welcomed” their involvement but was “deeply disappointed” that the Government did not provide the support needed for the building society to continue as an independent operation.

Mr Faulds said that Nationwide was “a first-class operation” by which existing Dunfermline members would be “well served”.

He added: “I and my board have worked tirelessly to protect the members and the staff and we have no reason to feel bad about this.

“We are deeply disappointed with the Government’s decision. It was unnecessary. But nevertheless we need to move on and we need to work with the new owners.”

The Dunfermline’s commercial book was performing “reasonably well” and the building society could have been saved if it was given access to around £20-30 million from the Government’s liquidity scheme, said Mr Faulds.

“This was an unnecessary move by the Treasury,” he said. “They clearly didn’t want to take the risk. We could have had an independent, sustainable future.

“What we needed was not capital, but access to the liquidity scheme and the Financial Services Authority raised the bar for access to the liquidity scheme.

“We were not asking for money to be given to us. We were asking for a loan, which would have been repaid with interest.

“We could have serviced a loan of between £20-30 million. That’s what we think we needed. It would have been secured against a good property book and a social housing book that’s rock solid.”

Scotland’s First Minister, Alex Salmond, today welcomed the deal but agreed that an injection of capital would have been a better solution.

He said: “I welcome the easing of the uncertainty which, over the last 48 hours, must have been affecting the 530 people whose livelihoods depend on the building society.”

He also welcomed the fact that it was being taken over by another building society - but only the profitable part.

He said: “If the Treasury is keeping the commercial book where the problems were, it does open the question of wouldn’t it be more cost-effective to provide the capital, as we wished to contribute, to allow the Dunfermline to trade on?

“Wouldn’t that have been better for the public purse?”

The Bank of England said today's deal was vital for the building society to continue and to protect savers.

It said: “The decision to transfer parts of Dunfermline’s business to Nationwide is designed to protect depositors and safeguard financial stability.

“It follows a significant deterioration in Dunfermline’s financial position.”

The mutual has more than 300,000 customers, with £2.35 billion in retail deposits and £1.02 billion in mainstream mortgage lending.

It has a 34-strong branch network and a head office in Dunfermline.

Nationwide, which is already the UK’s largest mutual, said the deal will boost its branch network to 900 and see its share of the retail deposit market grow to around 11 per cent.

But today angry protesters staged a demonstration at the sale of Scotland's biggest building society.

About a dozen protesters gathered outside the society’s HQ in Dunfermline, Fife, as staff arrived for work this morning.

Protester Brian McGally said: “We were extremely disappointed to find out the decision had been taken by the UK Government to sell off the Dunfermline Building Society”.

Mr McGally, a member of the Dunfermline, said he was disappointed the society’s members had not been consulted about its future.

And he said: “From what the chairman Jim Faulds said on television yesterday neither he nor his board had been kept in the loop.

“That’s scandalous and a gross discourtesy.”