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Credit Union Sector to be bailed out?

mountstreet

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Joined
Jun 28, 2009
Messages
10
Website
www.irishcuvoice.com
Throughout Ireland people are concerned their local credit union is in a spot of trouble. With over 200 credit unions probably unable to pay a dividend (interest) to savers this year many are facing what could become a run on savings as the penny drops on what has being going on. The “volunteer” directors of Ireland’s people’s banks lost the run of themselves, forgot how to lend money and blew a €500m hole in their risky investment portfolios. The number keeps getting larger as losses refuse to go away no matter how much some massage their accounts.

The crisis is so big it’s taken the wind out of the Irish League of Credit Unions (known as the League) who recently proclaimed credit unions being twice as safe as banks! Oops bit of a slip up there! Then again it once talked up its tiny bail out fund as offering a “discretionary guarantee” :confused:should a credit union fail calling a government guarantee a “death fund”. Mind you the League has been well fingered for leading the charge in promoting the risky investment strategy that led to the losses.

Well it seems Irelands bunch of “enthusiastic amateurs” (regulatory expression- not mine) are thumping the table demanding to be allowed to dip into their capital reserves to fund dividend payments and are demanding a NAMA type solution to sort out their investment losses.

Thing is at €500m of an investment book of €7bn, credit union losses approach Anglo’s proportions in relative scale before their bad loans are factored in. And to make matters worse you can’t add one credit union balance sheet to another. One credit unions large losses, cannot be offset another’s lower losses.

To boot while they appear awash with cash as less than €5 in every €10 of €11.5bn in household savings lent out they are also illiquid. Yup they are invested in stuff they cannot back out of without losing more money. The regulator has told many, including some quite large operators, to cut back on lending.

What’s to be done? Seems as if a bail out scheme will have to be cooked up before credit union’s annual round of AGM’s kicks off later this year or else all hell will break lose.

As people wise up to the fact a credit union can only pay interest to savers from profits made and “no profits = no interest/dividend” many are beginning to move their money elsewhere.

Others are asking their credit union if it will be able to pay a dividend this year and if not why not?

Just how much the bailout will cost is anyone’s guess as no one is providing a scintilla of data save to say that “some” are in trouble etc…
 


toughbutfair

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Joined
May 28, 2009
Messages
9,797
about six years ago, I was planning to buy my first home but didn't have the deposit, the norm was to borrow from the credit union and use as a deposit. I wasnt a member so I opened an account in the union where my family were, I opened it with a tenner. I then asked them for a loan of 20k, they said they would only loan 5 times my deposit.

I borrowed 5k from my sister, put in the union, borrowed 25k , gave my sister back her 5k and had my deposit.

What a great business structure.
 

ArtyQueing

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Joined
Jun 2, 2008
Messages
302
I do not know how you managed that - our credit union will not let you withdraw money if it means you have a loan larger than your savings
 

White Horse

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Jun 13, 2006
Messages
7,012
Most credit unions I know have an abundance of deposits and very low levels of loans.
 

mountstreet

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Jun 28, 2009
Messages
10
Website
www.irishcuvoice.com
Great business structure? Paying interest on 25k for access to 20k? Problem is 2/3rds of all first timers did the same thing at peak boom prices on a zreo questions asked basis - and the League of Credit Unions had the audacity to suggest credit unions were not exposed to property bubble lending. Add defaulting downpayment borrowers to investment losses and you are getting a picture of just how great the business structure is.

@MortgageBroker
Not quite the same thing equating a credit union dividend to a joint stock company dividend although the concept is similar. Not the same as a bond defualt either. It's more like a bank declaring it cannot pay interest on retail deposits as its losing too much money. Now what would happen to that bank?
 

luckyfrank

Active member
Joined
Mar 5, 2009
Messages
286
Im some savings in the credit union this is news to me

Im concerned are you saying that the credit union could go belly up like anglo ???????
 

peader odonnell

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Joined
Jul 12, 2007
Messages
3,487
Im some savings in the credit union this is news to me

Im concerned are you saying that the credit union could go belly up like anglo ???????
my local credit union is running radio ads offering unsecured loans ,no saveings neccessery ,will they ever learn? they were badly burnt recently by non nationals doing a runner.
 

mountstreet

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Jun 28, 2009
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www.irishcuvoice.com
In March this year 115 credit unions were reported to be operating at a loss and unlikely to trade into profit for the year.

Later in the year this figure approached 200. There are c415 credit unions operating with assets ranging €5m (tiny) to €300m (large).

The concentration of household savings is acute as savers are drawn from a local population living within c15sq miles of the credit union. Employer credit unions such as the Gardai differ – their “membership” is based on employment.

The top 100 control 80% of €11.5bn in savings and of these the top 50 control c60% or c€7bn

Apart from global figures : investment losses €500m, Bad Debts €787m etc. no one knows how these break down at individual credit union level for this year. Savers will have to wait until credit unions produce their accounts after their year end Sept ’09 and hold their AGM’s which can be any time from November next onwards – some AGM’s have been delayed until the following March.

@lucyfrank
Anglo hasn’t gone belly up – yet. It would have had the government not pledged its €4bn. No one knows how many credit unions might go belly up or are close to belly up status – called insolvency. Certainly the 200 operating at a loss will have to cover these losses from their reserves and if high enough then they could become insolvent. Many people think that while they are seriously under-lent : having less that €5 in every €10 out in loans that they are awash with cash. They aren’t as the money they could not lend, they invested – which is why they are facing €500m in losses. Much of this money is tied up in long term investments that cannot be converted to cash without triggering losses. So they are illiquid – short of cash and many cannot lend.

Remember savings are guaranteed up to €100k should a credit union fail – the issue is not the guarantee but how much it will cost the taxpayer to bail out credit unions.

see here for more: IRISH CREDIT UNIONS VOICES FOR THE FUTURE

http://www.irishcuvoice.com/2009/06/irish-credit-union-crisis-to-reach.html
 
Last edited:

ArtyQueing

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Jun 2, 2008
Messages
302
Aye - they would want you
 

mountstreet

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Jun 28, 2009
Messages
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www.irishcuvoice.com
@Mr De-
Yup you could if you're over 18, are not a bankrupt and don't have a criminal conviction. And you can stay on it as long as you like - you just have to convince the majoity of the 3 out of 100 who ever bother turning up at the annual genaral meeting for the free cup of tea, biscuit and free draw for the colour telly.

I know of one where a husband and wife rotate roles on the board, he's on another one and she's managing a third.

What's more you don't have to know anything about the business and won't be asked to prove that you do. If you're really good you get to go on the annual jolly to places like Hong Kong, Calgary and the Carribbean where you will would enjoy an all expenses paid trip which might also include your partner. You're too late for this year's jolly to Barcelona but next year it's Las Vegas.
 

Phinaeus

Active member
Joined
Mar 8, 2009
Messages
200
@Mr De-
Yup you could if you're over 18, are not a bankrupt and don't have a criminal conviction. And you can stay on it as long as you like - you just have to convince the majoity of the 3 out of 100 who ever bother turning up at the annual genaral meeting for the free cup of tea, biscuit and free draw for the colour telly.

I know of one where a husband and wife rotate roles on the board, he's on another one and she's managing a third.

What's more you don't have to know anything about the business and won't be asked to prove that you do. If you're really good you get to go on the annual jolly to places like Hong Kong, Calgary and the Carribbean where you will would enjoy an all expenses paid trip which might also include your partner. You're too late for this year's jolly to Barcelona but next year it's Las Vegas.
Is this a serious thread? If so, please give us a list of the credit unions that are in trouble and I'll then tell you how I'm fixed.
 

fiannafailure

Well-known member
Joined
May 16, 2009
Messages
2,066
In March this year 115 credit unions were reported to be operating at a loss and unlikely to trade into profit for the year.

Later in the year this figure approached 200. There are c415 credit unions operating with assets ranging €5m (tiny) to €300m (large).

The concentration of household savings is acute as savers are drawn from a local population living within c15sq miles of the credit union. Employer credit unions such as the Gardai differ – their “membership” is based on employment.

The top 100 control 80% of €11.5bn in savings and of these the top 50 control c60% or c€7bn

Apart from global figures : investment losses €500m, Bad Debts €787m etc. no one knows how these break down at individual credit union level for this year. Savers will have to wait until credit unions produce their accounts after their year end Sept ’09 and hold their AGM’s which can be any time from November next onwards – some AGM’s have been delayed until the following March.

@lucyfrank
Anglo hasn’t gone belly up – yet. It would have had the government not pledged its €4bn. No one knows how many credit unions might go belly up or are close to belly up status – called insolvency. Certainly the 200 operating at a loss will have to cover these losses from their reserves and if high enough then they could become insolvent. Many people think that while they are seriously under-lent : having less that €5 in every €10 out in loans that they are awash with cash. They aren’t as the money they could not lend, they invested – which is why they are facing €500m in losses. Much of this money is tied up in long term investments that cannot be converted to cash without triggering losses. So they are illiquid – short of cash and many cannot lend.

Remember savings are guaranteed up to €100k should a credit union fail – the issue is not the guarantee but how much it will cost the taxpayer to bail out credit unions.

see here for more: IRISH CREDIT UNIONS VOICES FOR THE FUTURE

IRISH CREDIT UNIONS VOICES FOR THE FUTURE: Irish Credit Union Crisis to reach a Crescendo this Year
I have been in a credit union for 20 years and I couldn't tell you if I ever got a dividend and do I care if I get one this year. nope. Its like the interest in my bank deposit account account, wouldn't even buy a pair of shoes. But I think the OP poster might be able help me with the bank interest, could be wrong but...
 

mountstreet

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Joined
Jun 28, 2009
Messages
10
Website
www.irishcuvoice.com
Yes its serious. Over 115 will not make any profit this year and will not be able to pay a dividend. Upwards of 200 are said now to be operating at a loss. Hundreds of millions have been wiped off balance sheets.

There is no list of those that are in trouble nor will there be. The Financial Regulator produces absolutely nothing in terms of data and the ILCU's stats are useless. The only way of knowing is for people to contact their credit union and ask if it will be able to pay a dividend this year. Given the year end is September credit unions should know by now.

And if people are exercised enough to be concerned they should read credit unions accounts this year, (some are more transparent than others) attend the AGM and ask the hard questions - such as how did the credit union lose money on investments it should never have made - what are its chances of trading out of its financial difficulties and when will it be able to pay a dividend again? and so on.

If credit unions are to be bailed out then they should be forced to make the changes the regulator has long campaigned for but were denied by a governmental system capitive of political lobbying. Had it been listened to and acted on in 2004, credit unions would not have lost €500m+
 

Phinaeus

Active member
Joined
Mar 8, 2009
Messages
200
Yes its serious. Over 115 will not make any profit this year and will not be able to pay a dividend. Upwards of 200 are said now to be operating at a loss. Hundreds of millions have been wiped off balance sheets.

There is no list of those that are in trouble nor will there be. The Financial Regulator produces absolutely nothing in terms of data and the ILCU's stats are useless. The only way of knowing is for people to contact their credit union and ask if it will be able to pay a dividend this year. Given the year end is September credit unions should know by now.

And if people are exercised enough to be concerned they should read credit unions accounts this year, (some are more transparent than others) attend the AGM and ask the hard questions - such as how did the credit union lose money on investments it should never have made - what are its chances of trading out of its financial difficulties and when will it be able to pay a dividend again? and so on.

If credit unions are to be bailed out then they should be forced to make the changes the regulator has long campaigned for but were denied by a governmental system capitive of political lobbying. Had it been listened to and acted on in 2004, credit unions would not have lost €500m+
That is helpful. Thank you. A further question: are credit union deposits protected by a government guarantee?
 

mountstreet

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Joined
Jun 28, 2009
Messages
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www.irishcuvoice.com
Savings are protected up to €100k per individual under the new DGS legislation. Not one cent was guaranteed until now. The ILCU campaigned against a deposit guarantee for years and stymied the regulators move to promote one in 2006. But the problem isn't a guarantee which is payable when a credit union fails (the total tax payers exposure is €11.5bn given than nearly all deposits are less than €100k.)

The problem lies with preventing failure and this will mean guaranteeing credit union impaired assets ie investments or arranging for a Nama type solution on top of arranging for an liquidity solution as many are strapped for cash with money tied up in loss making investments or long dated stuff they cannot cash in without incurring losses. So on the one hand liabilities are guaranteed - savers funds are protected but it won't prevent failures as investment losses and bad debts mount. So how much will all this cost the taxpayer? No one knows for now.
 


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