Today’s news that Nationwide will take over the deposits, staff, offices and good mortgages of the Dunfermline Building Society presumably requires substantial taxpayer payment or guarantee, just as the Bradford and Bingley one did. Once again I can find no mention of the sum of money to be handed to Nationwide as dowry to pay for the deposits minus what mortgages they are taking. The Bank of England website skates over that uncomfortable truth,and the Treasury website ignores the whole topic. Alex Salmond thinks there is a £1 billion Treasury payment to go with the assets and liabilities passing to Nationwide.
What we do know is the taxpayer is taking on the social housing loans, to be held in a “bridge bank” owned by the Bank of England on our behalf. And what we also know is the Labour supporters are on the airwaves already, telling us the Scottish government was not big enough and rich enough to “save” Dunfermline, which required the government of the UK to come in with the resource to sort it out.
We can expect a continuing spat between Mr Salmond, arguing it would have been cheaper to have subsidised the original entity, and the government, telling us the losses were potentially too large. They claim it will be cheaper to put the bad bits into Adminsitration and let Nationwide have the good bits with a dowry.
Once again the taxpayer – and the good institutions that stand behind the Compensation scheme – will pick up the bill, however big it may prove. Supporters and members of mutuals, ever willing to take the better interest rates or bonuses in the good days, will not of course be willing to put up the capital to pay the losses at their Society, now the management they chose has made such a mess. That is one of the weaknesses of the mutual model. Shareholders in banks have often been prepared to put in more share capital to pay their losses.