Dunfermline BS Stability

Sisyphean_Task

The government wants other building societies to raise the funding required by the Dunfermline BS?

Would that would be the same government that has made prudent building societies pay for the reckless lending done by Bradford & Bingley and against building society pleas let interest rates tumble so much that they cannot generate enough savings income?

No wonder the other building societies aren't listening to Crash Gordon this time.

bristolleedsfan

Sisyphean_Task wrote: »

and against building society pleas let interest rates tumble so much that they cannot generate enough savings income?

.

The Building Societies only started "pleading" for interest rates to be held when many of their savings rates had already reached levels that couldnt be cut any/much more thus meaning that further base rate reductions = reductions in its SVR Morgage rate against savings rates which couldnt be cut any/much more = reduction in profit margins.

If you read the ISA sub-board the majority of ISA transfers are going from Building Societies to Banks/PLCs due to them paying higher rates despite operating under the same Base Rate conditions.

Andrew64

A government bailout is looking most likely. The option of it being taken over by another BS seems to be out. I don't really think the government wants to see it close down, although there are claims that Labour wouldn't mind just to show up the SNP! Of course, Dunfermline isn't really that big so winding it up must be an option - then everyone just has to wait for their money back from the FSCS.

http://www.timesonline.co.uk/tol/news/uk/scotland/article5955989.ece

baby_boomer

Independent - MP asks government to step in - Nothing much new here

FT - Government to consider its options on Dunfermline BS

".....
The government is considering several options, including recapitalising Dunfermline through the issuance of permanent interest-bearing shares (Pibs), a type of security similar to the preference shares that governments have used to recapitalise banks. Some of the UK's 55 building societies would subscribe to the Pibs, with the Treasury taking up the balance. Another option would be a straight injection of cash from the Treasury.

John Goodfellow, chairman of the Building Societies Association, said that the UK's other building societies had the capacity to assist the Dunfermline. "The sector has always felt responsible for its own difficulties and been able to sort them out in the past."
But many building societies believe that they have already been asked to bear a disproportionate amount of costs arising from the government's Financial Services Compensation Scheme. The deposit insurance scheme has been hit by the troubles of the banking sector, in particular the collapse of Bradford & Bingley and the Icelandic banks......"

## - This is all very well. But no-one's going to invest in Dunfermline to receive less than 10%+ so a £50m bail-out is going to cost it £5m from its bottom line. How is it going to attract future savers and borrowers with this extra millstone round its neck + the FSCS levy for 2009 & 2010?

You can bail out a BS but it doesn't mean it will prosper in the future as a going concern Like the bailed out banks, it would have to screw its customers for years into the future.

More from the FT
".......Another option would be to invoke the government's new "special resolution" powers for insolvent financial institutions, although the mutual sector is keen to avoid even temporary state ownership for the building society.

Last year Dunfermline said commercial property lending had reached £270m in 2007. It had more than trebled over two years, just as themarket peaked...."

"......The Treasury said: "The authorities have repeatedly made it clear over the past year that they will take what ever steps necessary to maintain financial stability and to protect savers". The Dunfermline could not be reached for comment."

It sounds to me like Gordon is not going to let Alex Salmon get anywhere near claiming the credit for saving Dunfermline.

Markyt

Andrew64 wrote: »

The option of it being taken over by another BS seems to be out. [/url]

That option must have already been discarded. Think about the last few mergers - there wasn't even a whisper of anyone being in difficulty until the mergers were announced. If this news has gone public with no merger in sight, then its because other BS's have been approached and rejected the chance to rescue the Dunfermline.

Fella

Markyt wrote: »

That option must have already been discarded. Think about the last few mergers - there wasn't even a whisper of anyone being in difficulty until the mergers were announced. If this news has gone public with no merger in sight, then its because other BS's have been approached and rejected the chance to rescue the Dunfermline.

Agree. Behind-the-scenes deals are very much the preferred MO of the Govt & they must have tried & failed to engineer one here. If Dunfermline is in this state I wonder just how many other BSs are too?

evenasus

opinions4u wrote: »

Typically, 2% of a savings' institution's customers have over £50k.

These 2% will have, give or take, a third of the overall savings held within that institution.

If a significant number of savers with more than £50k withdraw down to £50k a previously stable building society that has suffered a modest loss could be brought to its knees.

But you can't blame people for reducing their savings to £50K.
I had over £250k in a BS until the Northern Rock episode.
Now still £15K over the limit, but as soon as a NWide bond I have matures in early May, it will migrate elswhere.

Andrew64

evenasus wrote: »

But you can't blame people for reducing their savings to £50K.

Exactly! Until Northern Rock I had all my money in one bank account and one building society account. I have diversified since then, but I was still surprised when building societies started getting into trouble for stupid reasons like having money in Icelandic banks!

opinions4u

evenasus wrote: »

But you can't blame people for reducing their savings to £50K.
I had over £250k in a BS until the Northern Rock episode.
Now still £15K over the limit, but as soon as a NWide bond I have matures in early May, it will migrate elswhere.

Not at all.

I just find it strange that the FSCS which is designed to bring confidence is actually the greatest cause of instability in the system.

No scheme + confidence in government actions

is better than

£50k limit forcing large sums of money to leap from institution to institution every time there's a sign of weakness in a particular savings provider.

claire07

Wasn't there a recommendation in the latest Turner report that the guarantee limit should be increased to 100k?