Nationwide to lead bids for housing loans

Published on Saturday 11 April 2009 13:48

NATIONWIDE Building Society is expected to lead the bidding for the £650m social housing loan book transferred from the Dunfermline Building Society to the Bank of England.

The sale process could get under way within the next few weeks.

The social housing loans were switched temporarily to DBS Bridge Bank, owned and controlled by the Bank of England, following the rescue of Dunfermline by Nationwide and the Government.

Social housing represents low margin business, prompting a number of banks to pull out of the sector. Dunfermline's loan book returns little more than 0.5% to 1%.

But it is also low risk and the bid process is expected to attract a healthy response from rival building societies and banks. One source said Nationwide would be keen to get hold of the business: "It is a market that will continue to do well," he said.

Dunfermline provides loans to 91 – approximately two-thirds – of Scotland's housing associations and is the second biggest provider with a 22% share of all loans. It is behind Royal Bank of Scotland, with Bank of Scotland in third place.

It is not known whether RBS would bid or be allowed to bid for the Dunfermline's loan book, given it is owned largely by the taxpayer.

Of the total book, Dunfermline has 465m on loan with a further 190m committed but not yet drawn by housing associations. The Scottish Government, which attempted to provide financial support to the Dunfermline, says social housing is a "primary issue".

Nationwide acquired 2.3bn of retail deposits, representing 300,000 account holders, together with 34 branches and retail sites, the head office and 1bn prime mortgage lending book.

Scotland on Sunday has learned that the actual sum required to plug a hole in Dunfermline's balance sheet was closer to 140m, rather than the 60m to 100m widely reported. Parties close to the talks say that even this sum would not have been sufficient to sustain the long-term independence of the society, which would have gone bust without a merger.

Nationwide group development director Tony Prestedge visited the Dunfermline head office last week and met MSPs to reassure them about its plans. He has indicated that the takeover will not lead to a jobs clear-out and that cutbacks will be minimal and mainly restricted to group functions such as treasury, human resources and finance.

He also said that fears of branch closures were misplaced and that even where Nationwide and Dunfermline have branches in the same street it did not mean one would close.

Further details on Nationwide's plans to integrate the two businesses are expected by early summer.

Financial advisers are anticipating new product launches from Nationwide in an attempt to retain Dunfermline customers and lure new ones. It is thought that it may launch a savings bond as early as this week.