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Perhaps there is an untold story here. Many of the so called conservative mutuals joined the feeding frenzy for toxic mortgages. Examples include Cumberland Building Society who set up a subsidiary company called Solway Mortgages to place any low grade mortgages their branches could not under-write, including applicants wth mutilple CCJ`s, bankrupts and those who had previoulsy fallen foul of lossing a home through possession. I do not like the banks but neither can building society`s be two faced. Such lenders promote one image to the press and public and then do exactly what they criticise others - hypocrits. what is going to happen when these toxic mortgages products mature - I am sure the likes of the CBS will not bail them out with a prime CBS mortgage. they will unfortunatley be left to potentially add to an increasing volume of posessions nationally. The morals of mutuals should not be seen in the same light as older generations from that sector - many of their management are ex-banking and retail/sales driven just like the rest. Sad but true of many of them. Why has the above never been picked up by the press, because for many years local building society`s have worked closely with the local press and often provided a tangible % of their advertising income stream - hands that feed and biting come to mind!

You can`t make a sil purse out of a sow`s ear. Building Societies did a tremendous job of lending locally and serving their communities. They were never designed for or capable of commercial lending and once they changed to being "banks" the end was in sight.

Equally bank`s had little or no history of mortgages, what they did they did badly , and eventually ran them as loss leaders as you say.

What we are seeing now is an increasing bankopoly, just as dangereous as Tescopoly. The difference being, meantime at lesast, the big 4 supermarkets are not being shored up by the taxpayer.

Fewer shops, fewer banks, ghost towns instead of communities.

Who says big is beatiful and greed is good now?

All this just goes to show what an unholy mess the entire financial sector is in..........mostly of their own volition in relation to risk.As to blog 30 EHBAHGUM on recent post-No,Iam not being unkind.The british public purse is not a cash cow with unlimited resources.There has to be closure to this assumption that any amount of money can be thrown at those who have failed us.The greed and naivety displayed by many of he institutions got us into this and yet it is US, the punblic who foot the bill every time.Heaven know what the tax burden will be in future years...........just when Crash Gordon is enjoying his retirement in some cosy backwater.Incidentally,HM Gov has refused to help Corus Steel with their problems by supplementing wages-a company who I work for but not from Apr 3rd when I am redundant.The company is struggling with a massive downturn in production and sales revenue.It is highly likely that many thousands are facing being laid off in the near future too.As the jobless list increases just where does Crash expect to see tax revenues increase when,every month hundreds of thousands are added to the dole queues ????? There is very little scope for revenue increases in HM treasury coffers-more likely increasing deficits as benefit payments mount incessantly.No wonder Merv King is telling No 10 to stop spending.He can't print the quids quick enough !

This blog raises some very pertinent issues about building societies in the modern financial era, an area that I am currently researching. As this blog rightly identifies building societies are coming under a number of pressures on both sides of the balance sheet. Furthermore, as broughsuperior explains some building societies have expanded into more specialist lending areas that the traditional mutuality model may not readily identify. I suspect that Dunfermline BS is unlikely to be the last Building Society that will experience financial difficulties in the current crisis. Remember, we have already seen four merge with larger players.

I'm with the nationwide.

Recently they have reduced ALL interest rates on my saving whilst posting me new HIGHER rates of interest on my credit card (now closed, balance was zero anyway).

I'm sure you see my point though, I think they are skint big time!

It was always going to happen, what with Gordon Brown as Dunfermline East MP for 22 years, his jinx destined the Society for disaster.

Which is why it will also clearly be bailed out, despite it definitely NOT being systematic to the risk of the financial system.

I think you've slightly missed a very important point here though. They may well have been competing for business on wafer thin margins with "greedy banks", but the problem is that this has been a massive massive housing bubble and is now bursting. Dunfermline could have lent money only to people with a 25% deposit in 2006, and those loans would still be underwater now (sure - not anywhere near as much as they are), because the housing assets they're secured against were just hideously overvalued. A company whose job it is to lend against housing is always going to be facing problems if house prices crash.

The problems highlighted speak of the general nature of the building society market.

However, the problem with the Dunfermline issue is that this does not apply at all.

They are in fact architects of their own demise by both bad lending in a commercial sector and a massive failed IT project which delivered very little very late to a very big cost.
Their Board whilst 'in touch' with the community were very out of touch with the harsh realities of trying to manage such a big undertaking internally without help.

No company with a business model like the DBS could realistically recover from it.

I can't help but think that the woes of the building society movement are being over played.

Its not the absolute value of the property that matters, its the ability of the mortgage holder to meet the payments.

If you buy at X and your property is now worth X-Y, its of no real importance unless you have to or need to move home, and consequently have to crystalise a loss.

This must only apply to a very limited number of mortgage holders.

I suspect that the vast majority of morgages taken out prior to 2005 will still be less than the current market value of most domestic properties

A typical morgage will be taken out over a 25 year period so given the devaluation of money over time there cannot be too much overall "toxicity" in the system if you take the long view.

Obviously, with rising unemployment there is likely to be an increase in the number of people who default (possibly only temporarily) on payments but again, this will be only a marginal part of the entire market.

Speculation by Building Societies in the commercial property sector is another matter entirely, of course.

I've probably overlooked some fundamental economic point in this view so I await being shot down in flames - but please, no vitriol. I'm only expressing an opinion.

You have to question what the board, including the new CEO were doing. They have taken a viable, mutual society and managed to post a ridiculous loss. Step forward and explain yourself Mr Willens!

@vlad

Willens accepted a poisoned chalice. Dalziel set these wheels in motion well before Jim took over, realistically there was nothing he could do to stop the rot.

Dunfermline has been decaying internally for years and it's own image has been to blame. The cushy number for staff is over.

The banking world now reminds me of the National Health Service.

While clinicians and medical people managed the health service, hospital hygiene was never a problem, and outbreaks of bugs were minimal.

Once managers took over NHS trusts, the focus changed, and basics like cleanliness and helping patients that cannot fend for themselves (eg eating) were put on the back burner.

Is this what has happened in the banking world also, with managers ruling the roost, albeit managers with a nominal financial grounding ?

How else could suicidal or high risk policies be implemented without the full professional approval of the Big Guns ?

The answer is cast care aside, your competitor is doing "such and such", let's do what the lemmings do.

As with Tom McKillop and Dennis Stevenson, Jim Faulds had no knowledge or qualifications in Banking.

Yet all 3 men were appointed chairmen of major Scottish financial institutions.

With similar results..........