THE European Commission yesterday cleared a plan by British authorities to provide aid of over £1.5bn to facilitate the restructuring of Dunfermline Building Society.
The restructuring saw the split-up of the building society, of which a part containing good assets and liabilities was sold in an auction to a competitor.
“The Commission found that the orderly break-up of Dunfermline resulted in the return to viability of the good part that was sold,” the Commission, the European Union’s executive arm, said in a statement.
It said sufficient burden-sharing in the liquidation of Dunfermline, a building society mostly active in Scotland, limited the distortion of competition caused by the aid.
The firm ran into difficulties as a result of its exposure to loans for housing development, commercial investment and buy-to-let.
Due to the increased likelihood of defaults on these commercial loans, Dunfermline was forced to make substantial provisions to cover potential impairments, the Commission said.
“The UK authorities opted for a market-oriented solution which enabled competitors to obtain the viable parts of the businesses, while at the same time... limit distortions of competition,” EU Competition Commissioner Neelie Kroes said.
City minister Lord Myners criticised Dunfermline’s poor corporate governance regime as a significant factor in its failure during the financial crisis.
FAST FACTS | DUNFERMLINE
● Established in 1869 Dunfermline is the largest Scottish building society.
● Dunfermline is now part of Nationwide – the world’s largest building society – which also owns the Derbyshire and Cheshire societies.
City A.M. Reporter