Societies still deserve their reputation
AND then there were 50. While the taxpayer bailouts of Royal Bank of Scotland and Lloyds/HBOS have dominated the headlines in recent months, yesterday's partial takeover of the Dunfermline Building Society by the Nationwide means that a total of five building societies have disappeared in the past year.
AND then there were 50.
While the taxpayer bailouts of Royal Bank of Scotland and Lloyds/HBOS have dominated the headlines in recent months, yesterday's partial takeover of the Dunfermline Building Society by the Nationwide means that a total of five building societies have disappeared in the past year.
The number of societies remaining now totals a round half-century, with the Nationwide having already stepped in to takeover the Cheshire and Derbyshire societies while the Yorkshire and Skipton have swallowed up, respectively, their smaller neighbours the Barnsley and the Scarborough.
In addition, the Britannia Building Society - the second largest player in the sector behind Nationwide - is in the process of merging with Co-operative Financial Service, which includes the Co-op Bank.
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So is it fair to say, as some pundits would now have it, that the image of the “conservatively managed” building society is a false one? The answer is probably “Yes and no”, but not necessarily in that order.
The extent to which the Dunfermline has been managed “conservatively” is certainly open to question, given its level of exposure to the commercial property and sub-prime mortgage markets.
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When the Dunfermline's chairman, Jim Faulds, accused the Government yesterday of “sacrificing” the society - on the basis that it could have survived as an independent entity had been given access to the Bank of England liquidity scheme - he was perhaps getting his retaliation in first.
Chancellor Alistair Darling claims it would have taken between �60million and �100million of to prop up the society and that that, even taking into account its underlying profitability, it would not have been able to repay such a sum.
The result is the acquisition by Nationwide of the Dunfermline's savings business and branch network, together with most of its residential mortgage book- with a �1.6billion sweetener from the taxpayer - while “problem” assets such as commercial loans and some residential mortgages will be place in administration.
Whether, as Mr Darling believes, this will achieve better value for the taxpayer than full nationalization only time will tell but what does appear to be clear is that, as Prime Minister Gordon Brown put it yesterday, the Dunfermline is, to some extent at least, the “author of its own mistakes”.
So what of the other building societies which have succumbed to financial crisis? The Barnsley sought a safe refuge after the Icelandic banking collapse put �10million of its assets at risk, the Derbyshire had exposure to both commercial loans and sub-prime mortgages, the Cheshire's problems stemmed from a single commercial loan and the Scarborough cited more general concerns about its capitalisation.
With the merger of the Britannia with the Co-op Bank representing such a good fit that it would make sense in any financial climate, it is difficult to see how, in all of this, there any reason to question the credentials of the wider building society sector.
Such difficulties as most societies face are explained by historically low interests (making it difficult to attract the savings deposits) and the unfair cost of the Financial Services Compensation Scheme (which takes no account of risk).
Since both phenomenon are the result of the global financial meltdown - for which the blame is to be shared between banks, regulators, governments and, in the final analysis, borrowers - the difficulty of a few building societies really does need to be seen in perspective.