Dunfermline chiefs 'took lending risk' MPs blame bosses for collapse.

DUNFERMLINE Building Society failed due to bosses taking risks on commercial loans, MPs said yesterday.

MPs on the Scottish Affairs Committee also criticised the Financial Services Authority for failing to adequately warn of the risks being taken.

And they went on to brand a late pounds 25million offer for the firm by the Scottish government as "gesture politics".

The committee were examining the collapse of the Dunfermline, which was forced out of business by regulators last March.

They were taken over by the Nationwide Building Society days later.

Committee chairman Mohammad Sarwar said: "It was clear from talking to employees that the board was the architect of their failure, entering into commercial loans against rising prices."

Loans to US banks, including pounds 460million with GMAC and pounds 57million with Lehman, led to a more than five-fold rise in their commercial loans.

He added that in 2008 he believed Dunfermline was the only society that was lending more than 100 per cent mortgages - a strategy that had already led to the collapse of Northern Rock.

The board, he went on, had misled society members by claiming that they had made "excellent progress" on an IT project, when in fact they had lost pounds 9.5million.

The report criticised the Financial Services Authority (FSA) for failing in its duty to protect savers and investors.

He said: "The FSA failed to discharge their duties to put pressure or to have the proper checks and balances when they knew there were weaknesses."

He said they should have taken "more vigorous and effective" action to warn of the dangers of the society's commercial loans, buy-to-let and self-certification mortgages.

Serviced Estimates for how much cash the society needed to stay afloat ranged from pounds 30million to pounds 250million.

However, they could not have serviced such a loan.

First Minister Alex Salmond offered pounds 25million just before the society was taken over by Nationwide.

But committee member Lindsay Roy said: "On its own, it was gesture politics."

Sarwar said pounds 25million would "not have made any difference" to the viability of the Dunfermline.

CAPTION(S):

LOAN LOSS: Society