Is Scotland’s biggest building Society in trouble?

According to press reports the Dunfermline is on the brink of unveiling a significant financial loss, exposing another of Scotland’s financial institutions to the threat of a takeover.
The reports say that the 130-year-old mutual, which has about 240 staff, has been plunged into turmoil through its exposure to the beleaguered commercial property market.

It is understood the society will reveal an expected loss of about £26 million in the next few weeks, compared with a £2 million profit last year.

Sir Menzies Campbell, former leader of the Liberal Democrats and MP for North East Fife, said: "If the Dunfermline is taken over by a UK national institution, then it is another example of a Scottish bank finding it difficult to maintain its independence."

Its Scottish roots appear only to be a hindrance at the moment with speculation of following in the footsteps of Halifax Bank of Scotland and the Royal Bank of Scotland into some form of state ownership.

Will deposit customers be secure is a key question for most. In my view the government will not allow any UK depositor to lose money, this precedent has already been set with the treasury funding the Bradford and Bingley balances not covered by the Financial Services Compensation scheme limit of £50,000 and picking up the tab for un-protected balances in the failed Icelandic Banks.

Lots of people have already asked me if the rumours are true and of course I don’t know. However reading between the lines the Scotsman asked the Dunfermline if they stood by a pledge by Mr Dalziel (the previous Chief Executive) six months ago that the Dunfermline would remain "an independent mutual building society", a spokesperson replied: "Graeme is no longer here. That was his statement back then, not now. We are committed to remaining a mutual."
This tells me that Merger is on the cards or there is at least a requirement for them to raise more capital to survive and as a deposit-taking institution, the Dunfermline would potentially be eligible to apply for some of the government's bail-out schemes.

The commercial property market caught out several lenders in the recession of the early nineties and at the time drove a number of mergers at that time. I am thankful that Saffron has never really been pro-active in this area and consequently has less than 1% of its book in commercial assets. For Dunfermline’s sake I hope they can find a way to get through the current difficulties, to see another Scottish institution fail would be a real blow to Scotland, but I guess time will tell.