Leader: Answers Needed Over Drastic Rescue of 'Seemingly Safe' Dbs
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Summary
WHAT lessons should be learned from the demise of the Dunfermline Building Society and its takeover by Nationwide? The published annual accounts of DBS for 2007 - which one would suppose are there to explain the society's financial operations - contain not a hint of the disaster to come. In particular, it is impossible to identify in the accounts the scale or nature of the society's exposure to commercial property, which proved its ultimate downfall.
DBS made nearly GBP 650 million of commercial property loans. Commercial property - shops, offices and factories - earn rent and can be a good financial proposition, but the commercial market is highly cyclical: a recession means property values plummet. A mutual building society, with no easy recourse to raising capital, is not in the best position to ride out these storms. Worse, DBS made GBP 500 million of commercial loans in the past three years - just as the economy was crumbling.See the full content of this document
Extract
Leader: Answers Needed Over Drastic Rescue of 'Seemingly Safe' Dbs
This was risky, yet no discussion of the strategy or its inherent risks appears in the annual report.
The regulatory authorities and the building societies must address the apparent ability of bodies such as DBS to publish reports that are v...See the full content of this document
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