Dunfermline BS Stability

sixtyplus

I too worry having transferred 14000 to their ISA in February! However the FSA guarantee up to 50000, so I presume my cash will be safe. If I were to transfer it to another provider the rate will be much less, so..... the devil and the deep blue sea.

baby_boomer

BBC Scotland

Dunfermline BS must not fail

"John McFall, the Chairman of the Treasury Select Committee and the Labour MP for West Dunbartonshire told the BBC's Newsnight Scotland programme: "The government can't afford to let the Dunfermline Building Society go, if for no other reason than confidence in the financial system...." [and the Labour Party's desire for support in its Scottish heartlands ]

It'd be nice if the government could tell us, though, not a supposedly neutral committee chairman.

baby_boomer

A bit of light relief at an MP's expense while we twiddle our thumbs and await to hear the exact form of the final rescue package.

Hansard - exacly two weeks ago

William Rennie, MP for Dunfermline, in the House of Commons on 10 March 2009

"Dunfermline building society ....is well respected throughout west Fife and Scotland and it is a safe institution.

While others have boomed and many have gone bust, it has stayed steady and strong.

There is an important point to be made in the wider perspective. When even the safe bodies that have not chosen the rocky road of high profits are under threat, the whole fabric of society begins to unravel and people have even less confidence in Government institutions and the advice provided by Government, Ministers and politicians. We must take an extra step to ensure that institutions such as the Dunfermline building society are rewarded, not penalised, for being trusted."

No wonder he's rushing around like a headless chicken to save some face :rotfl:

Heraclitus

Just to inject a little balance regarding the Dunfermline; if it does have to write off £60million from capital it would still be left with around £80million. That means that its assets effectively exceed its liabilities, i.e. it is a long way from insolvent. Certainly not comfortable but a long way from being broke and even further away from the cowboys like Northern Rock and Bradford & Bingley.

The real danger lies in newspaper reports stoking up fears which can easily lead to an unjustified run.

It is likely that there may be some other building societies that may post losses - but providing they have strong reserve levels that need not be a problem. Indeed, if they have shrunk their mortgage books, they could post a loss and still have a better reserve ratio than they had the previous year end.

Certainly while a few building societies may have bought sub-prime mortgage books or indulged in 100% loans or even placed some of their liquidity with Icelandic banks, the vast majority have done none of these things. As a result they are well placed to ride out the current shambles - provided of course, irresponsible press comment doesn't provoke mass hysteria.

The fact is that most building society boards are so risk-averse and conservative that they used to be laughed at for being stick-in-the-muds but it did mean that they didn't indulge in most of the practices that screwed the banks and the ex-building societies that wanted more freedom and excitement!

Heraclitus

Just to inject a little balance regarding the Dunfermline; if it does have to write off £60million from capital it would still be left with around £80million. That means that its assets effectively exceed its liabilities, i.e. it is a long way from insolvent. Certainly not comfortable but a long way from being broke and even further away from the cowboys like Northern Rock and Bradford & Bingley.

The real danger lies in newspaper reports stoking up fears which can easily lead to an unjustified run.

It is likely that there may be some other building societies that may post losses - but providing they have strong reserve levels that need not be a problem. Indeed, if they have shrunk their mortgage books, they could post a loss and still have a better reserve ratio than they had the previous year end.

Certainly while a few building societies have bought sub-prime mortgage books or indulged in 100% loans or even placed some of their liquidity with Icelandic banks, the vast majority have done none of these things. As a result they are well placed to ride out the current shambles - provided of course, irresponsible press comment doesn't provoke mass hysteria.

The fact is that most building society boards are so risk-averse and conservative that they used to be laughed at for being stick-in-the-muds but it did mean that they didn't indulge in most of the practices that screwed the banks and the ex-building societies that wanted more freedom and excitement!

bristolleedsfan

Heraclitus wrote: »

It is likely that there may be some other building societies that may post losses - but providing they have strong reserve levels that need not be a problem. Indeed, if they have shrunk their mortgage books, they could post a loss and still have a better reserve ratio than they had the previous year end.

!

U dont seem to understand that the concept that underpins "Mutuality" and "Building Societies" is that "losses" dont get made, when they do its normally a cue for a takeover by a "stronger" BS Society.

Heraclitus

You're quite right - until now any loss has always been "dealt with" by takeover. The result is that any loss is seen as the ultimate weakness. In fact, as I think you are suggesting, this is a nonsense. Any company, including a mutual, may make an occasional loss without affecting its future viability (provided the loss is not too large).

In fact a mutual is better placed to handle a loss as it doesn't have the stock market on its back constantly to increase profits from year to year.

Provided it maintains adequate reserve and liquidity ratios, short term losses are really not a problem - it is the public perception of those losses, as fostered by the industry itself which is the problem.

baby_boomer

Heraclitus wrote: »

Just to inject a little balance regarding the Dunfermline; if it does have to write off £60million from capital it would still be left with around £80million. That means that its assets effectively exceed its liabilities, i.e. it is a long way from insolvent. Certainly not comfortable but a long way from being broke and even further away from the cowboys like Northern Rock

Are you suggesting our Chancellor was a liar in February 2008 ?

http://www.cityam.com/index.php?news=8333

"Alistair Darling said that Northern Rock's mortgage book was of "good quality" with assets outstripping liabilities"

But seriously, the bigger point which you gloss over is that having a bit of capital to the good may not be enough - not in the eyes of the BS industry or the press or the public - but in the eyes of the FSA which sets the benchmark that Dunfermline seems not to be reaching. If you in an industry which lends long and borrows short you need proper buffers against things going wrong.

You make a good point about societies perhaps shrinking mortgage books to maintain capital ratios in spite of making a loss. The problem here for savers is that expense ratios will go up and savings rates may down as a result. Stagnation is not good for long term prospects. Maybe Scots might stick with their society, however, out of national loyalty, even if it has to go through a period of ten years of mediocre rates to repair the damage?

Let's be clear that the current mess lies not with the press but with the Dunfermline board for not being able to sort out either its accounts or its future. Not to mention risky lending when they were less well capitalised than most other BSs.

And I do hope you're right about the vast majority of building society boards still being boring at heart. It will be interesting to assess that when all the results are in.

baby_boomer

Herald - Dunfermline chief seeks to reassure investors

The leak about the £26m loss is said, by a source, to have come from the Edinburgh political establishment.

The Herald
"The society has to lift its tier one capital from 5% to 8% in line with new tighter ratios."

And the new expanded message from the DBS website

"Message from Chief Executive
As everyone is aware, economic conditions over the last year or so have been extremely adverse, which has badly affected many organisations and economies across the world. The UK building society sector has not been immune from this economic downturn and several societies have already reported losses and major asset value write-offs. In the case of Dunfermline Building Society, our year-end results, which have attracted much press speculation over the past week, will be released within the next 10 days. In the meantime, I can confirm we continue to meet our regulatory capital requirements and have strong liquidity. Additionally, our network, telephone service and website services are continuing to offer superb service to our Members, and our staff are on hand to provide reassurance and to answer questions. It is very much business as usual. The Board and Executive team of Dunfermline remain wholly committed to protecting the best interests of our Members and staff and we are continuing to do everything in our power to ensure Dunfermline Building Society’s future as a strong mutual building society. Jim Willens, Chief Executive."

## - If the results are any later, he will be breaking building society rules in general and Dunfermline's own rule book in particular.

Scotsman - Dunfermline talks make progress but no deal agreed yet

opinions4u

baby_boomer wrote: »

Are you suggesting our Chancellor was a liar in February 2008 ?

I seem to remember the FSA issuing statements about how safe and secure HBOS were the day before they were forced to announce their 'merger' with Lloyds.

An old mate from my branch manager days tellls me that HBOS staff received numerous messages about 'safe bank' and 'strong balance sheet' in the months prior to tanking.

Of course, a balance sheet is strong.

Until (a) the funding for it is lost or (b) you write down asset values or deduct losses from your tier one capital.

Which Dunfermline are yet to do!