The UK Treasury is abandoning Dunfermline Building Society (DBS) in its hour of need in order to embarrass the Scottish government, it is claimed
Insiders accused the Treasury, overseen by chancellor Alistair Darling, of dragging its heels over the ailing institution to show the SNP cannot handle such a financial rescue. “There is frustration and real anger within the Dunfermline Building Society at the way the Financial Services Authority and the Treasury have been handling this,” said a source.
Talks between the building society and the UK authorities have broken down over a capital shortfall at the Fife-based institution. But this weekend it emerged the Scottish government was prepared to step in with a £25m lifeline.
Some analysts think the SNP’s intervention might break the logjam in negotiations with the Treasury, whereby the building society must first raise £30m to £40m of fresh capital before it can access the Bank of England’s discount window facility.
“I think the UK Treasury is behaving outrageously. Its thinking is ‘Let’s show up the SNP as being impotent and unable to organise a financial rescue’,” said Edinburgh-based corporate financier Peter de Vink. “But this is not the Scottish government’s responsibility; financial institutions are not a devolved matter.”
The Bank of England’s discount window facility — which allows financial institutions to swap less liquid assets for Treasury bills — replaced the government’s special liquidity scheme on 30 January. Sources at Dunfermline Building Society said last night they were confident they would be able to raise the capital.
Dunfermline Building Society — which has assets of £3.3bn and 312,000 customers — must publish its annual report and accounts within the next two weeks. But the board feels unable to do so until the recapitalisation and liquidity issues have been resolved — so it essentially has a two weeks to secure its future.
The society is reportedly poised to unveil losses of £26m for the year to 31 December 2008. That compares with a profit of £2m in the year to 31 December 2007. The losses are largely provisions against its £250m of commercial property loans which have soured.
If it cannot raise the capital needed in the next two weeks, Dunfermline Building Society, founded in Dunfermline in 1869, has a limited chance of surviving as an independent institution. In that event, it would need to seek a merger — or else be wound up or nationalised.
The three most likely partners are all suffering from deal fatigue at the moment. Yorkshire recently merged with the Barnsley Building Society; Nationwide has swallowed up both the Derbyshire and Cheshire Building Societies; and the Britannia has merged with Cooperative Financial Services.
In a worst-case scenario, Dunfermline Building Society’s savers would be protected up to the value of £50,000 each under the financial services compensation scheme. However, 550 jobs would be at risk.
A Treasury spokesman said: “The authorities have made it clear they will take whatever steps necessary to maintain financial stability and protect savers.”
This article was published in The Sunday Times on 22 March 2009. Read it on Times Online