Dunfermline blame game
Ouch. The story about the demise of the Dunfermline Building Society is not a comfortable one for participants to hear again.
And the telling of it by the Commons' Scottish affairs select committee this morning packs quite a few punches.
It's no surprise that the management take a large share of the blame. Former chairman Jim Faulds had already taken that on the chin, when he gave evidence to the committee.
But there are serious charges that the directors failed to tell the society's members what they were up to. In the case of a new computer system the Dunfermline was developing, that looks like a straight lie, even if that's the kind of non-parliamentary language MPs avoid.
The building society Members Review said there was "excellent progress" on that, when there was anything but. It was out of control, with spiralling budgets.
That meant a £9 million write-off, which is a small sum compared with the amounts of risky investment in securitised assets.
That includes those bundles of loans that others had agreed, often lacking the normal standards of credit checking that you'd expect of a traditional old building society.
Mr Faulds has been incensed at the suggestion this was "toxic" or "US sub-prime lending". He also points to the risks rapidly built up from 2002 until 2005 being rapidly managed down.
And he has claimed that the "political spin" put on the £1.6bn of the Dunfermline's riskier assets shouldered by the UK Government as part of the collapse and takeover is actually made up of lending that can be expected to be paid off normally.
This is all water under the Forth Bridge for the former managers of Dunfermline.
The criticisms of the Financial Services Authority - the lead regulator - are more powerful, because it's still at work, and in a big way.
The forced collapse of the Dunfermline on Saturday 28 March was decided by regulators, using a new law. And MPs say the law was applied without the building society at the heart of this story being properly informed about the standards expected of it - one of the accusations hotly contested by the regulator.
Warnings leading up to the worst part of the credit crunch, from September last year, were too vague and scatter-gun, sent to all chief executives throughout the financial sector rather than being specific. The Dunfermline was not given clear direction as to what was expected.
Part of the confusion coming out of this is what could have been done to save it. The Scottish Government was willing to step in with £25 million of capital injection, allied to £30 million that the Building Societies Assocation was willing to table as part of its attempt to shore up the sector's reputation.
There was a suggestion that £60 million would be enough - strengthening the capital base on which lending is calculated, and which is a measure of the balance sheet's robustness. But in the pressure on all these players earlier this year, there was a lack of clarity as to whether that would keep regulators happy.
Having indicated £60m would do the trick, it was then thought that would only be a short-term solution, lasting perhaps two years. And by that time, an impatient Chancellor, Alistair Darling, seems to have concluded that he wasn't interested in such sticking plasters. The result was that he took on a risky loan book of £1.6bn.
Hullo, I'm Douglas Fraser, and I'm business and economy editor at ³ÉÈË¿ìÊÖ Scotland. Welcome to my blog, where you can read my take on money matters, viewed from a Scottish perspective.
Comment number 1.
At 30th Jul 2009, WestFifer wrote:The Liberal Democrats come out of this really badly - they had run around for days claiming that its all the government's fault and taht new bank boss was a hero. Turns out that Vince Cable was wrong (again) - why does the media always treat him like a financial guru, when clearly he gets it wronmg more than he gets it right.
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Comment number 2.
At 30th Jul 2009, Barbazenzero wrote:Douglas,
You say that: "There was a suggestion that £60 million would be enough - strengthening the capital base on which lending is calculated, and which is a measure of the balance sheet's robustness. But in the pressure on all these players earlier this year, there was a lack of clarity as to whether that would keep regulators happy."
That gives us the impression that either you haven't read the UK Parliament's or that you have, but believe that Faulds was being "economical with the truth".
If the former, your arithmetic seems as unreliable as Brian Taylor's, and similarly sourced. If the latter, perhaps you'd explain why the controlling NuLab members of the "Scottish Affairs Committee" failed to challenge him.
Oh, and why do you think the committee criticised the FSA but failed to mention Duff Gordon's beloved Treasury or the competence of Cap. Darling?
This report by the "selected" cronies of those two luminaries does nothing to dispel the odour of rotting fish hanging over this issue since March. The only question that really matters was whether this was a deliberate "scorched earth" action or plain incompetence all round, with the exception of Faulds himself from October 2008 onward.
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Comment number 3.
At 30th Jul 2009, gedguy2 wrote:Again we have ³ÉÈË¿ìÊÖ reporters not bothering to do the research and end up just repeating what everybody else was saying. Where is the investigative journalism that one would think would be a prerequisite for holding an illustrious post such as the 'business and economy editor at ³ÉÈË¿ìÊÖ Scotland'?
Why have you not bothered to find out who came up with the 150 million figure? Why have you not investigated why the Nationwide could do a takeover in only 48 hours when you know that these sort of things take months to do? Why have you not found out and reported to us the reason why the figures that the FSA were quoting for the continuation of the DBS was constantly changed upwards when the DBS managed to come up with that money? Why have you not asked anyone in government why certain MPs were quoting 1.6 billion of bad debt when it is obvious from the transcript that this was blatantly untrue? Why are you not investigating those claims instead of repeating Labour government propaganda?
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Comment number 4.
At 31st Jul 2009, U14087092 wrote:One man has to hold his hand up here. Jim Faulds. Winged it in Advertising. Even more massively out his depth here. Ask most of the people who have worked for him. Scotland's problem again is that historically it's 'Captains of Industry' are actually far from that. Look at the recent so called 'Business Leaders' we look up to now. They have not gathered a fortune through great business acumen. Luck, right place at the right time, shadiness, family money etc etc. If they were a bit more honest about how they got where they were we could look up to them and learn from their mistakes. This was a Building Society that was run into the ground by people who basically didn't know what they were doing, taking risks with other peoples money with no regard for anybody but themselves. Not one of them is now any poorer or any less thought of than before. No apology, no sleepless nights, moaning about their 'bad luck'. Get a mirror, have a good long look.......
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Comment number 5.
At 31st Jul 2009, spartans11 wrote:"And by that time, an impatient Chancellor, Alistair Darling, seems to have concluded that he wasn't interested in such sticking plasters."
So basically Faulds was right, the FSA were monkeys dancing to AD's organ. He made all the decisions, which as in his previous history, ended in a shotgun marriage.
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Comment number 6.
At 31st Jul 2009, yourfriendforlife wrote:What did Jim Faulds and Andy Hornby have in common.
Apart from ruining 2 great Scottish institutions, neither had any knowledge or experience in financial services.
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Comment number 7.
At 31st Jul 2009, Barbazenzero wrote:#4 unclefucpuppet
Welcome newbie. A controversial first post, I see. In the hope that you're not actually a Record "reporter" but have a mind of your own, do you not think that Faulds distinguishes himself from the politicians by his admission that prior to October 2008 the wose of DBS were down to the management? Do you perhaps have a copy of the KPMG report that provided the plan for recovery from then on? At least the "faceless mandarins" acknowledged its existence in their evidence to the "Scottish" affairs select committee on Wednesday 20 May 2009.
What a pity they have never released it to the public domain to prove that they were telling the truth while Faulds was dissembling. And what a surprise that KPMG were rewarded for their presience and public silence by being appointed administrators of DBS.
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Comment number 8.
At 31st Jul 2009, Barbazenzero wrote:#6 yourfriendforlife
"Apart from ruining 2 great Scottish institutions, neither had any knowledge or experience in financial services."
I note from your #4 on Peston's HBOS: Burt and Mathewson to withdraw that you're no friend of NuLab, so I'm a little mystified re why you think the blame's all Faulds'? Do you really think that Capn. Darling and his minions have been telling us the truth, the whole truth and nothing but the truth?
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