Nationwide favourite to buy DBS social housing arm

Published on Sunday 12 April 2009 21:07

NATIONWIDE is likely to be the front runner in the bidding for the social housing book of the collapsed Dunfermline Building Society.

But the UK's biggest building society is unlikely to want to take on the book without a cash "sweetener", or favourable deal from the Bank of England, experts have claimed. It is understood that a sale is likely to take place "in the foreseeable future" – probably within few weeks.

Nationwide, which bought the mutual's retail division when it plunged into crisis last month, did not take on the social housing book as part of the deal.

The social housing business was split from the rest of the business and switched temporarily to DBS Bridge Bank, which is owned and controlled by the Bank of England. The government took on the third part of the failed business – Dunfermline's toxic commercial loans book.

Nationwide yesterday refused to comment on whether it was likely to make a bid for the social housing portfolio, but company sources told The Scotsman it was something the building society "may well be interested in".

A spokeswoman for the society said: "It is too early to say. However, when we agreed to the takeover, we arranged a deal which was right for the taxpayer and members, and the social housing loan book has not been part of the deal so far."

Mortgage broker Ray Boulger, of John Charcol, said he believed the Nationwide was the only building society likely to consider the social housing portfolio, but was unlikely to do so "without a pretty strong incentive".

He said: "The Nationwide would be the obvious candidate. In fact, if asked, I would probably say it would be the only candidate. However, I think it is unlikely they would take it on without any kind of a sweetener."

He said the "sweetener" could be in the form of a favourable deal in terms of what the buyer would pay for the loans – or might be a deal that would see the assets bought for a nominal amount and a lump sum paid out to the buyer by the Bank of England.

The Dunfermline provides loans to around two-thirds of Scotland's housing associations and has 465 million of the total book on loans, with a further 190m committed, but not yet drawn by housing associations.

It is the second biggest provider behind Royal Bank of Scotland, with Bank of Scotland the third biggest provider.

But Boulger added that he thought government-owned banks would be unlikely to be involved in the deal.

He said: "RBS and HBOS are both very active in the homebuy scheme, which has some similarities. However, if a deal was done with the government-owned banks, everyone would be crawling all over it to make sure nothing had been hidden, so I think it is unlikely that would happen."

Royal Bank of Scotland refused to comment on whether it would consider a bid.