Page last updated at 07:49 GMT, Monday, 23 March 2009

Building society in crunch talks

Dunfermline Building Society sign
The Dunfermline would not comment on speculation about its finances

Scotland's biggest building society remains in intensive talks with the financial regulator over its future.

It emerged at the end of last week that the Dunfermline Building Society was in serious trouble and facing multi-million pound losses.

The society, which has 34 branches across the country and almost 500 employees, was founded 140 years ago.

It made £2m profit in 2007 but it is now understood that the mutual is having problems with its cash flow.

There has been speculation that it could announce losses of up to £26m.

It is understood many of Dunfermline's woes stem from its exposure to bad loans in the commercial property market.

BBC Scotland business editor Douglas Fraser said the main players had been unwilling to talk about the situation, which had led to a great deal of speculation.

"Indeed the building society seems unwilling to protect its own reputation amid this speculation," he said.

"It is fairly clear it is facing a multi-million pound loss, the lowest estimate reported is £26m.

"We are told that concerns were raised months ago."

We will continue to look after our members' best interests and it's very much business as usual
Dunfermline Building Society statement

He said the building society needed an injection of capital.

"The problem here is that the regulator, the Financial Services Authority, requires any financial institution that is lending to have a certain base of capital in order to match the liabilities that are out there.

"Building society capital is made up through profits, if it is making a loss instead then that balance gets out of kilter and the regulator steps in."

He added: "I think it is important to point out that a building society does not operate in the same way that a bank or another company does.

"It does not have shares, there is no collapse of the share price here, there are no hostile bids coming in - it is primarily pressure from the financial regulator to get its books sorted out."

He said recent takeovers at smaller building societies in England had left the big players, the Britannia, the Nationwide, the Yorkshire building societies, "risk averse" and not keen on further mergers.

Both Scottish Secretary Jim Murphy and the Deputy First Minister Nicola Sturgeon have pledged that their administrations will do whatever they can to help the Dunfermline building society.

'Business as usual'

It is understood the Scottish Government has discussed the provision of about £25m to back the Dunfermline's involvement in social housing, which is a devolved responsibility.

In a statement, the building society said "It is not our policy to comment on rumour or speculation.

"We will continue to look after our members' best interests and it's very much business as usual."

Labour's Dunfermline East MSP Helen Eadie told BBC Radio Scotland: "The cost of not doing anything is something that is immeasurable.

"We have to make sure that we do afford this cost because we can't even contemplate not doing anything."

Former Liberal Democrat leader Sir Menzies Campbell said it was important that the both the SNP Government in Edinburgh and Labour ministers in London were "plugged into" the problem.

"We don't want any question of Westminster and Holyrood being at odds," he said.

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