Dunfermline 'rescued', Tesco adds banking aisle

Nationwide to 'rescue' stricken Dunfermline Building Society, while Tesco plans 30 new banks.

Last Updated: 31 Aug 2010

All 34 branches, 530 staff and 300,000 customers of The Dunfermline Building Society will be take over by the Nationwide, in a hastily negotiated deal announced this morning. The news comes barely 48 hours after the Dunfermline put itself up for sale as a result of expected losses of £26m last year. Hardly the best way to start G20 week for PM Brown – Dunfermline is on the doorstep of his own Kirkcaldy constituency.

In a way, the fact that the deal was done as trade sale – and so promptly too – could be seen as encouraging. Signs of vitality returning to the financial sector and all that. But of course it’s not that simple. While Nationwide gets the good bits - £2.3bn of retail deposits, £1bn of good-quality mortgage loans and of course the 140-year-old brand itself (erm, surely that’s still worth something?), the taxpayer has been left to pick up the rest. That’s the toxic debt – commercial loans and mortgage backed securities – which got the Dunfermline into this pickle in the first place. So in order to make the ‘sale’, the state has had to  assume responsibility for all £900m of these loans, losses on which could hit £100m according to the FSA. 

So in reality the deal looks pretty similar to the ‘rescue’ of Bradford & Bingley by Banco Santander – i.e. not really a rescue at all. But the Dunfermline’s retail depositors and employees certainly have a lot to be thankful for this morning all the same. Not that you would know it from the reaction of the Scottish Nationalist Party, which has accused the Government of attempts to ‘deliberately undermine a Scottish financial institution.’

Err, hello? As far as we can see the Dunfermline has done a pretty good job of undermining itself – it didn’t need help from anyone else to get hideously out of its depth in the securities market. For once – and it doesn’t happen often these days – Alistair Darling got it exactly right. It would cost between £60m and £100m to keep the thing going, he said, before concluding ‘When you bear in mind the society has never made more than about £5m or £6m in the recent past, it couldn’t even service that sort of loan – let alone repay it.’ 'Nuff said.

With so-called professional money men getting themselves into that kind of trouble, perhaps its no wonder that Tesco has chosen this moment to throw it’s hat into the banking ring. It’s planning to open 30 more banks in-branch by the end of the year, starting with Blackpool, Coventry and Bristol. Things have come to a pretty pass when we’d rather borrow money from a grocer than a banker, but Tesco’s personal finance arm is going gangbusters since the retailer bought out its former partner RBS for £950m in 2008. More accounts were opened with Tesco in December 2008 than in the whole of 2007.

Meanwhile back in the City, the news that Barclay’s has passed the FSA stress test – meaning that’s its adequately well capitalised as it stands –sent its shares soaring. If Barclay’s can succeed in its earnest desire not to have to take a government hand-out, it will be the best piece of news for the banking sector in months. Fingers crossed!

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