The news that the Nationwide is to take over the Dunfermline Building Society is good news for the Nationwide, but lumbers the tax payer with yet more debt.
Nationwide has bought the Dunfermline Building Society and thereby safe guarded the savers and borrowers of this failing mutual society.
Nationwide, however, has agreed to buy the best bits of the Society and will not be saddled with the Dunfermline’s £1.5bn of bad loans, which are to be passed to the Treasury.
So Nationwide will be acquiring the prime mortgage business, the high street branches, head office and savings accounts from the Dunfermline, all of which should boost the profitability of Nationwide in the months to come.
On the other hand, the taxpayer is to pick up yet another £1.5bn of toxic loans.
Should the Dunfermline have been allowed to fail, then the ramifications for the economy would have been horrendous. We don’t want to see another line of savers rushing to extract their savings from yet another failed bank or building society.
The Government had little choice but to step in and save the Dunfermline, just as it did with the Cheshire Building Society and Northern Rock. Unfortunately there will be other names to add to this list before this financial crisis is over.
As the crisis deepens, though, the Nationwide is emerging as a clear winner. Through careful lending practises and competitive loans and savings rates, it has built a solid business whilst other financial institutions have boomed and bust spectacularly.
Nationwide is slowly acquiring the juicy assets of a number of failed competitors whilst leaving the bad assets to be picked by the taxpayer.
So the Nationwide wins, again. And the tax payer is laden with another big bag of toxic debt.
The problem is, that the tax payer is you and me. It is us who will be picking up the bill at some point in the near future.
