Lend me a Fifer
Attention may have shifted to the protesters and broken glass of the Royal Bank of Scotland headquarters in London, but there is still lots of dust to settle on the state of the Dunfermline.
Some of it was settling on MSPs.
At Holyrood, Alex Salmond was saying that £25m of Scottish Government money was "on the table".
It's not clear which table, as Holyrood does not have powers to spend money that way.
And if it had the powers, as Mr Salmond would prefer, would it be able to salvage a modestly-sized building society with immodestly-sized money problems?
If it costs £1.6bn to plug the gap between assets and liabilities, the £25m wouldn't go far towards that.
But let's take another look at that £1.6bn, transferred from Treasury to the Nationwide Building Society.
If you read many media reports of the Dunfermline split and sale, it seems that Chancellor Alistair Darling has put the spin cycle inadvertantly into reverse.
It looks as if the British taxpayer has taken on an unspecified amount of toxic assets - somewhere between £800m and £1bn - while also paying out that £1.6bbn to the Nationwide to take on the non-toxic, happily functioning parts of the Dunfermline.
But it isn't quite like that. The £1.6bn is in lieu of liabilities transferred that are not covered by assets. Most of that should come back to the Treasury.
What is now required is for the administrators, KPMG, running out the payments on toxic assets, or flogging them off for the best price it can find.
That will contribute towards paying off the £1.6bn.
But it is likely to involve losses on the face value of the assets, the size of which depends on the depth of the recession and the patience shown by those administrators and the Government.
Most of the gap that's left should be filled by the Financial Services Compensation Scheme (FSCS).
Once it knows the amount recovered from the book of toxic assets, it will know how much it has to levy from the rest of the financial sector to ensure that individuals with up to £50,000 in savings (twice that for joint accounts) have their accounts guaranteed.
The UK Government has said it will meet any amount above those limits, which could be a "residual" cost in the range of £10m.
(If you're a saver, no need to apply directly to the FSCS. The Nationwide/Government will do that for you, and meantime you can access your funds as normal.)
So is it now the case that the taxpayer will not be paying, as the £1.6bn is paid back?
Almost.
In addition to the "residual" amount, there's a £69m fee being paid to Nationwide as compensation for the risk involved in taking on a building society with inadequate time to check the books for nasty surprises.
But then, think of where the financial sector is going to find the money to pay the FSCS levies; from profits, from shareholders, from returns to savers, from mortgage returns.
From pretty much the same people who happen to be taxpayers.
Such people lose out either way, and the hit on bank and building society profits will depress their chances of getting back on their feet again.
To illustrate the point, the FSCS has just published the levy it is requiring of the sector for the past year. Including five rescues - Bradford and Bingley, Heritable Bank, London Scottish, Icesave and Kaupthing Singer and Friedlander - that is now going to cost other institutions £406m.
It's strange, then, the Chancellor gave the impression he has paid twice to sort out the Dunfermline.
It's also strange that he should let such confusion open the door to his Nationalist adversary, Alex Salmond to argue that the Dunfermline could have been independent, with a totally different reading of the state of its finances.
A further risk in all this lies in the £500m-worth of social housing loans now sitting in a "bridge bank" somewhere in the Bank of England accounts.
It seems unlikely, in the current circumstances, that someone in the busy corridors of Threadneedle Street, London, is going to take time out of shoving quantitatively eased moolah out the door so that credit can be kept flowing to Scotland's housing associations.
So it's important for social housing in Scotland that loan book gets moved on. But who would want it?
It may be tempting for Alistair Darling to turn to Alex Salmond and say: here you go chum, social housing is devolved... let's see you sort it out.
Graeme Dalziel, the Dunfermline chief executive who claims to have "passed the baton" last December, has this week joined the gallery of those who led Scotland's big finances houses into trouble, alongside Andy Hornby, Lord Dennis Stevenson, Sir Tom McKillop and, of course, Sir Fred Goodwin.
(RBS ex-chairman McKillop, incidentally, has today given up his hope of re-election to the board of BP, including its remuneration and ethics committees, for reasons set out in this blog on 24 March.)
But it's striking that in each case, there's been someone at a more junior level with authority to push lending as hard and fast as possible.
At the Royal Bank, it was Johnny Cameron, who parted company with the RBS on the same day Sir Fred stood down. At the Bank of Scotland corporate division, it was Peter Cummings, let go by the incoming Lloyds bosses.
At Dunfermline, the name to watch is Peter Weanie. He arrived at the Dunfermline in 2002, with a blank sheet to define how to go about his business. Directors had decided that margins on traditional lending were too low, and it was necessary to emulate banks by expanding into commercial property.
The strategy wasn't his fault. And the Society seemed happy to push him into the public eye in newspaper interviews, talking up their expansion of lending.
But Mr Weanie seems to have been relieved of his duties last autumn, as those lending chickens flew home to roost, and destroyed the nest.
Hullo, I'm Douglas Fraser, and I'm business and economy editor at ´óÏó´«Ã½ Scotland. Welcome to my blog, where you can read my take on money matters, viewed from a Scottish perspective.
Comment number 1.
At 2nd Apr 2009, Brian Hill wrote:My God. Something approaching a balanced article from Douglas Fraser.
Bill Jamieson too has been pretty balanced since the HBOS days and now a few Scotsman articles from other are beginning to level out a bit.
Early days of course but either it means that some journos are beginning to see things in a slightly different light or conversely, they now think the damage done to the Independence cause is so deep that they can afford to ease up.
Either way, balance....or close to it, is to be welcomed.
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Comment number 2.
At 2nd Apr 2009, nine2ninetysix wrote:Lest we forget there are real losers in this debacle.
Firstly the Dunfermline members who have seen their business sold without recompense, at least those in the banks still have their "penny shares" with recovery ever more possible by the day.
Secondly the consumer, less High Street competition.
Thirdly the staff, there will be job losses.
Fourthly our communites, branch rationalisation will ensue and for sale / to let signs will spring up.
The tax payer is unlikely to lose in even the medium term and politicians / bank executives can always console themselves with their bloated pensions.
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Comment number 3.
At 2nd Apr 2009, minuend wrote:The whole thing stinks.
DBS members have been shafted, they have lost their building society.
DBS workers have been shafted too by the Natiowide takeover.
The Nationwide has been GIVEN £1.6 billion of taxpayers money for a business that experts stated needed only £60 million to stay independent and had less that £20 million of toxic debt.
The FSA has again been found wanting, no communication with the DBS board, Scottish government nor potential Scottish bidders.
The Treasury and Labour Ministers seem intent on dismantling the Scottish financial sector and carting it off to England.
The Bank of England has behaved like a rank playground bully.
.....and lording it over this mess is Gordon Brown - uber Unionist - the Mr Bean of economics - who becomes more pathological by the day over the issue of Scottish indentity.
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Comment number 4.
At 2nd Apr 2009, The_Delta-Phi_Oracle wrote:#2, nine2ninetysix:
I stand to be corrected, but I am assuming that the Dunfermline members will have their interests 'converted' into interests in the Nationwide.
There is here the benefit that both were building societies, and such a 'rescue' is to be thought better than had the DBS been flogged off to a bank (with shareholders).
If a reorganisation of financial services is a necessary step, then I am 'happy' for a leading beneficiary to be the only one of the large building societies to turn its back upon demutualisation.
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Comment number 5.
At 2nd Apr 2009, yourfriendforlife wrote:Good to see you`ve added Graeme Dalziel to the rogues gallery.
.........or should that be the "parcel of rogues" gallery.
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Comment number 6.
At 2nd Apr 2009, Duncan in Edinburgh wrote:I can appreciate that you might have got it from the ´óÏó´«Ã½'s own, erroneous, reports, but talk of "broken glass of the Royal Bank of Scotland headquarters" is nonsense. The RBS office which had a couple of windows smashed yesterday was not its HQ, nor anywhere near its HQ. It was just one of hundreds of RBS offices.
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Comment number 7.
At 2nd Apr 2009, mike boothroyd wrote:#2 nine2ninetysix
What recompense were you anticipating?
Surely not a bonus for transferring from a bankrupt organisation to a stable one.
As a long- term member of Nationwide, as both a borrower (formally) and a saver (currently), I am happy to welcome into our society our mutual friends from Dunfermline. Much as we welcomed friends from Cheshire etc.
Long may we all prosper under the Nationwide banner.
Agree with the thrust of your other remarks.
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Comment number 8.
At 2nd Apr 2009, nine2ninetysix wrote:# 4
I hope you are right in what you say but Nationwide`s website suggests otherwise
The Dunfermline name and brand remain so I am assuming the exclusion for "subsidiary " companies will apply. I have requested further information on this but await a reply.
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Comment number 9.
At 2nd Apr 2009, The_Delta-Phi_Oracle wrote:Both and are using the term "members" to describe the status of Dunfermline account holders within the enlarged Nationwide group.
Dunfermline: "The transfer of Dunfermline savings accounts to Nationwide Building Society means that savers will continue to be members of a mutual organisation."
Nationwide: "The combined Society will continue to operate as a mutual building society, owned by and run for the benefit of its members. [...] As part of the enlarged organisation, Dunfermline members will benefit from the security provided by Nationwide’s scale and financial strength."
However, Nationwide confuse the matter elsewhere by stating that "There are no immediate plans to integrate Dunfermline’s member business with Nationwide’s member business"; there are other references to "Dunfermline customers" rather than "members."
So, it's as clear as mud, then......
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Comment number 10.
At 3rd Apr 2009, Barbazenzero wrote:Does anyone else not wonder why the KMPG report referred to by Faulds is still not in the public domain?
Could KPMG's appointment as be a down payment for their silence on why their report for the FSA differed so strongly from the story we had from Capn. Darling and the rest of HMG?
Had Faulds been economical with the truth, surely this is a perfect opportunity for HMG and the FSA to put it all into the public domain to show how prudent they were being with taxpayers' money.
The smell from this stitch up will not quickly disperse, and I for one hope that Jim Faulds can be persuaded to stand against Duff Gordon in Kirkcaldy & Cowdenbeath come the general election.
Post or reactive moderation for all except CBeebies, please!
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Comment number 11.
At 4th Apr 2009, scottish_solstice wrote:Not much news or info on the net about the Dunfermline Building Society.
The Labour Party have been very quiet about it, not just regarding their poor communications with the Society since October, but also a lack of media headlines on how they (Labour) are saving yet another Scottish financial institution!
The Dunfermline had not even announced their losses yet Labour jump in to save them and they have then gone on to claim that the loss would be at least 60m-100m.
Where is the evidence to back this up??
I am quite sure if the Labour Party had any evidence they would be shouting it from the roof tops!
As for the KPMG report, where is it??
To sum it up, what we do have here is a very prompt wrap up by the Labour party!
That speaks volumes on its own!
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Comment number 12.
At 26th May 2009, nine2ninetysix wrote:Just to update an old thread. I now have confirmation that Dunfermline memebers are now members of Nationwide and have voting rights.
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Comment number 13.
At 4th Jun 2009, handclapping wrote:Mr Fraser
Can we stop lending anything, let alone Fifers. We have a self-proclaimed Fifer, who, despite being the one to lead us into the mess by his borrow and spend voodoonomics, is now working "every day" to revive the economy by the same means. It was his poor selection of the men he made his banking knights, regulators, etc. and his dismantling of the previous regulatory regime and failure to replace it with any substantial successor that created the framework in which the directors of the Dunfermline felt they had to create a "higher income" source within our Society.
If you are willing to take this "Fifer" and bury him, I would be willing to give him to you and pay you good money for your pains.
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