Government steps in to protect Dunfermline savers

Savers have been reassured that their money is safe as the Government was forced to step in to save Scotland's biggest building society.

Potential buyers are being sought for the Dunfermline Building Society which is on the point of break-up today after racking up millions of pounds in losses.

Scottish Secretary Jim Murphy announced yesterday that the Government was stepping in to protect depositors, ahead of this week's expected announcement of losses of £26 million.

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.

Prime Minister Gordon Brown, speaking in Chile at the end of a five-day international tour, emphasised the Government's commitment to protecting savers throughout the current financial crisis.

"Savers will be protected," he said. "It is important to recognise that throughout this whole crisis, everyone who has been saving in a UK institution has been protected."

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 that the Government's priority now was to protect savers while salvaging what it could from the organisation.

"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 because Dunfermline is important," he told the BBC News channel.

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

It comes as another blow for Scotland's beleaguered financial services sector after the downfall of Royal Bank of Scotland and of HBOS, which included Bank of Scotland.

Scotland's First Minister Alex Salmond said he was "deeply disappointed" that the Treasury appeared to have ruled out maintaining Dunfermline as an independent institution.

"We hope that the Treasury has not closed its mind to the idea that, both in terms of employment and in terms of value for money for the public purse, maintaining Dunfermline Building Society as an independent and ongoing concern could well be the strongest option, and in the interests of its members and depositors," he said.

Mr Murphy said, however, 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 that we have seen in some of other situations, there is a real worry that the Dunfermline couldn't actually service the debt, so we are looking at some of the other kinds of models like the Bradford and Bingley type model."

Labour MSP for Dunfermline East Helen Eadie said: "The main focus over the coming days and weeks has got to be on the jobs of the nearly 500 staff who work at the Dunfermline.

"Many of my constituents work at the society and the next few days will obviously be a worrying time.

"However, I am assured that the Treasury will do everything it can to ensure that the best interests of savers, borrowers and staff will be at the heart of their plans to support the organisation.

"Doing nothing was not an option for the government and I'm pleased that the Treasury are acting swiftly."

Scottish Labour leader Iain Gray said: "I have been watching developments closely at the Dunfermline over the last fortnight and it's absolutely right that the Treasury are stepping in to protect the interests of the borrowers, savers and staff of the society."

Willie Rennie, the local Liberal Democrat MP for Dunfermline and West Fife, denounced the Government plans as a "betrayal" and insisted that a rescue deal was still possible.

"A deal is there to be done with the mutual sector in the UK which the Government must make a top priority," he said.

"The UK Government has contributed to the Dunfermline's difficulties by forcing it to give large sums to help bail out Bradford and Bingley and the Icelandic banks.

"Ministers should accept their responsibilities, rather than simply blaming everybody else."

The Dunfermline Building Society, 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 £2 million profit in 2007.