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Mon, Mar 30, 2009 - Page 10 News List

UK rescues Scottish building group

SAVE: British Prime Minister Gordon Brown said that the government was committed to protecting citizens who save money throughout the economic downturn

AFP , LONDON

The British government said on Saturday it would step in to save Scotland’s biggest building society, the latest lender crippled by the credit crunch.

The Dunfermline Building Society is expected to announce losses of £26 million (US$37 million) this week and Scottish Secretary Jim Murphy said the government was stepping in to protect depositors.

The BBC reported that the regulators — the Bank of England, the Financial Services Authority (FSA) and the British government — decided the Dunfermline was no longer viable and forced its sale.

Murphy confirmed that London was considering selling on the profitable parts of the building society to other financial institutions, while weeding out its so-called “toxic” assets.

“This organization faces real and severe difficulties. We are acting to make sure there is stability, to protect savers and to do as much as we can to save jobs and branches because Dunfermline is important,” he told BBC TV.

“If there was a standard bailout that we have seen in some of other situations, there is a real worry that the Dunfermline couldn’t actually service the debt,” Murphy said.

Murphy said there had to be a “long-term” solution to the society’s woes, saying other options would do little more than buy time.

He said the government was considering repeating what it did with Bradford and Bingley, a building society that last year was split into two halves, with the branches and deposits sold to Abbey and the mortgage book nationalized.

The Dunfermline, established in 1869, employs almost 500 staff and has a network of 34 branches.

Scottish First Minister Alex Salmond said he was “deeply disappointed” that the Treasury seemed to have ruled out keeping the society independent.

Murphy said it got into trouble because of “reckless” management decisions, such as going into the US subprime mortgage market.

British Prime Minister Gordon Brown, speaking in Chile at a conference of center-left politicians, stressed the government’s commitment to protecting savers throughout the economic downturn.

“Savers will be protected,” Brown said in Vina del Mar, TV pictures showed. “It is important to recognise that throughout this whole crisis, everyone who has been saving in a UK institution has been protected.”

The Dunfermline had posted a £2 million profit in 2007.

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