'Reckless' building society on verge of break-up

By Gavin Cordon

The Dunfermline Building Society, Britain's 12th-largest, was last night on the verge of break-up after racking up millions of pounds in losses through what a minister called "reckless" decisions.

The Scottish Secretary, Jim Murphy, announced that the Government was stepping in to protect depositors in the building society ahead of the expected announcement next week of losses of £26m.

He confirmed that the Government was considering separating out the society's so-called "toxic" assets, while selling on the profitable parts of the organisation to other financial institutions. Although he did not identify any potential purchasers, the Britannia, Nationwide and Yorkshire building societies have all been linked to a possible sale.

Mr Murphy blamed "reckless" decisions taken by the society's former management – including its involvement in the US sub-prime mortgage market – for its current plight. He said: "This organisation faces real and severe difficulties. We are acting to make sure there is stability, to protect savers, and to do as much as we can to save jobs and branches."

The announcement follows the failure of talks last week between Scotland's First Minister, Alex Salmond, and the Chancellor, Alistair Darling, to find a way of preserving the society.

Mr Murphy said that the Treasury believed that there had to be a "long-term solution" to the society's problems. "We have looked at a number of proposals along with the Building Societies Association and the Scottish government but concluded those would ultimately have done little more than buy time," he said.

"If there was a standard bail-out as we have seen in some other situations, there'd be a real worry that the Dunfermline couldn't actually service the debt, so we are looking at some of the other models, like the Bradford & Bingley type."

The Dunfermline Building Society, which was established in 1869, employs almost 500 staff and has a network of 34 branches. Its head office, Caledonia House, is in Dunfermline, Fife.

The latest expected losses come after it reported a £2m profit in 2007.