Derbyshire Building Society, the mutual rescued yesterday by Nationwide, was wrong-footed by bad bets in the money markets, hamstrung by a botched IT system and facing the consequences of a poorly timed £1.4 billion foray into sub-prime lending.

Failings at the top of Britain's ninth-biggest building society emerged yesterday as it admitted that it was facing “material financial uncertainties” and was surrendering to a takeover by Nationwide.

Graham Beale, the chief executive of Nationwide, told The Times that the proportion of Derbyshire's sub-prime borrowers more than three months in arrears was running at 9 per cent, which was “very high”.

Derbyshire aggressively pushed into lending to sub-prime borrowers in 2005. It started lending to self-certified borrowers, extending loans with no proof of income.

At £1.4 billion, sub-prime accounted for more than a quarter of Derbyshire's £5.4 billion loan book and was primarily responsible for Derbyshire's plunge to a £17 million loss in the first half and for possible further losses.

It was not the society's first setback: last year it wrote off £10.1 million after repeatedly failing to get its new computer system to work. It also positioned its treasury book on the assumption that market interest rates would fall, only to be burnt when they rose.

Peter Richardson, the chief executive responsible, took early retirement in January. Geoffrey Windebank, the finance director, was ousted last year with a £302,000 payoff, but there was no explanation to the members.

It is understood that the Financial Services Authority (FSA) took a close interest in shepherding the society into the hands of a stronger rival, such as Nationwide. It is determined to pre-empt another Northern Rock-style depositor run.

The FSA gave approval for a streamlined takeover, absolving the society from the normal practice of putting the takeover to a vote of its 485,000 members, who will receive no windfall payments.

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