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Dunfermline building society

Dunfermline disaster – many dead

Another one bites the dust. Scotland’s largest building society the Dunfermline, has collapsed amid the usual cries of betrayal, London perfidy and financial obfuscation. I have a scintilla of sympathy for the combative Chairman, Jim Faulds, who genuinely seems to believe in the mutual principle – but why then did the Dunfermline abandon it in favour of speculation? He and his executives will be reaching for their golden parachutes this morning and filling their pension pots, so save your concern for the 500 employees. And for the taxpayer – the bank of you and me – which gets handed the bill for Dunfermline’s toxic assets.

And from a supposedly boring building society, for heaven’s sake! I seem to recall Dunfermline boasting that it was so prudent in its lending that it just didn’t “do” mortgage repossessions. Now we learn that it has been heavily involved in a variety of sub prime investments, and was lending 100% mortgages even as the Scottish housing market slumped. We had been told repeatedly that this conservative institution was well-capitalised and solvent until, er, it wasn’t. A reported loss of £26m became £50m, then £100m, then think-of-a-number-and-double-it.

It was the same story with HBOS and RBS – everyone insists until the very last moment that there is nothing to worry about, perfectly safe, sound business, riddle diddle – and then, bang, the institution crashes into oblivion taking billions of public money with it. Misinforming investors about the financial health of a company should surely be against the law. Perhaps Gordon Brown, who has the privilege of having Dunfermline in his constituency backyard, could suggest this to the G20 this week as one of his new regulatory reforms.

And while we’re at it, what on earth was a mutual society, which is supposed to finance mortgage loans from retail deposits, doing buying dodgy mortgages from the American bank GMAC – notorious for the unreliability of its sub-prime assets? A building society is supposed to be owned by its depositors. Did they know about the &##163;650m in commercial property deals? Or its exposure to ambitious IT investments? Or that Dunfermline was in bed with Lehman Brothers, one of the most hard-nosed and aggressive Wall St. investment banks? And don’t give me the line that: “Oh we didna ken; we’re just wee folk fae Fife”. Well they ken noo.

I agree that the HBOS and RBS bail outs were an even greater reward for failure and should never have happened – but three wrongs don’t make a right. Nationalisation or administration were the only realistic options. The Treasury has blown so much money bailing out the dysfunctional banks, there’s no way it was going to establish a precedent by bank-rolling dud building societies as well.

That this is a further nail in the coffin of the Scottish financial services ‘industry’ hardly needs to be said. The coffin has been nailed so hard there’s barely any wood left. What happened to prudence? And how did a nation renowned for thrift and financial caution come to be cursed by such a disreputable and incompetent financial elite? Two of the most toxic banks on the planet have our names on them: Royal Bank of Scotland and Halifax Bank of Scotland. Sir Fred Goodwin has become an international icon of stupidity, recklessness and greed. Nor do I subscribe to the view that it is my patriotic duty defend bosses of Dunfermline Building Society just because they happen to be Scottish.

We thought Alex Salmond had learned to sup with a longer spoon in his dealings with bankers, but here he goes again, pleading for a rescue, defending the indefensible, blaming London. As Dunfermline is broken up, you can be sure that the FSA and the Treasury will make clear just how reckless was the behaviour of its executives. The briefings have already begun. So why expend political capital on trying to save them? Yes, I know that there are jobs at stake and there is a risk that another head office will go south. But these jobs have been destroyed, not by the Treasury, but by the Dunfermline Building Society which believed its own propaganda about Scotland being immune to the property crash.

Being an apologist for busted financial institutions undermines the authority of the First Minister’s office The same happened with HBOS when the FM leapt to accuse the “spivs and speculators” for its share collapse, until we discovered that the worst spivs and speculators we’re in HBOS itself. Then Alex Salmond doggedly supported Fred Goodwin’s Royal Bank of Scotland, which he assured us was a robust, well-capitalised and highly profitable business – until it needed the biggest rights issue in corporate history, and then the biggest government bail-out in history. We keep hearing about how Gordon Brown should be apologising for failing to realise how bad our bad banks really were, but I haven’t heard much contrition from the First Minister.

Of course political leaders can’t go around talking down the economy and RBS and HBOS were two of Scotland’s biggest employers. But nor can they allow themselves to appear to be captured by one sectional interest. FForget Sandi Thom’s expenses, the real scandal is how Scotland is now forever branded as home of the world’s worst bankers – Scottish government approved.

These motley fools have largely destroyed Scotland’s economy and now our biggest building society. The Dunfermline executives do not deserve to be bailed out and rewarded for this failure. Every one of them should have had the decency to have resigned by now. They deluded themselves into thinking that if they played the FSA long enough, and enlisted the political support of the Scottish government, that they would be bailed out like the big retail banks. But that was never going to happen. Dunfermline Building Society is not ‘too big to fail’ and they should have realised that before entering the speculative poker game.

No one regrets the loss of yet another mutual society more than I do., but they should have kept their noses clean – in the interests of their members if nothing else. They, not the executives, have been betrayed. Dunfermline is a dead parrot, it has gone to meet its maker, if it hadn’t been concealing its losses it would be pushing up the daisies. It is a late building society. The end.

About @iainmacwhirter

I'm a columnist for the Herald. Author of "Road to Referendum" and "Disunited Kingdom". Was a BBC TV and radio presenter for 25 years - "Westminster Live" and "Holyrood Live" mainly. Spent time as columnist for The Observer, Guardian, New Statesman. Former Rector of Edinburgh University. Live in Edinburgh and spend a lot of time in the French Pyrenees. Will that do?


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