Regulator feared ‘run’ on Newbridge Credit Union

Documents released yesterday by the

Central Bank

in relation to Newbridge Credit Union show that the regulator was concerned in 2012 about a "run" on shares and deposits at the institution if its true financial position was made public.

An affidavit sworn on December 14th, 2012, by Gregory Dempsey, deputy head of division in the registry of credit unions at the Central Bank, states that figures provided by the special manager of Newbridge Credit Union (NCU) – Luke Charleton of Ernst & Young – at the end of May that year indicated the credit union's regulatory reserve ratio was just 0.5 per cent, versus a requirement of not less than 10 per cent. The capital deficit to regulatory requirements was €13.8 million.

'Widespread concern'
"Disclosure of this information into the public domain could give rise to a widespread concern among members and depositors in NCU with regard to the financial position of NCU, which could potentially lead to a 'run' by members and depositors . . . on the shares and deposits held by them," Mr Dempsey stated.

Unaudited figures provided by the special manager relating to September 30th, 2012, showed that NCU had total assets of €103.6 million and an excess of liabilities over assets of €2.5 million.

This was based on the special manager’s assessment that the total stock of loan-loss provisions amounted to €56 million. Again, Mr Dempsey asked that this information not be made public.

The special manager’s reports, also published yesterday, projected that it would take NCU “about six years to replenish its capital to a level which met minimum regulatory reserve requirements . . . through normal trading, and without obtaining further capital”.

Mr Dempsey said withdrawals of deposits had “largely stabilised” at NCU following an “initial large loss of deposits” following the appointment of Mr Charleton in January 2012.

However, Mr Dempsey said the “continued necessity” to postpone NCU’s annual general meeting, which was due to be held in December 2012, could create concerns among members about the financial health of the credit union.

The special manager undertook a detailed business review, which was sent to the governor of the Central Bank Patrick Honohan on February 10th.

Called Project Tokyo, it highlighted a number of issues relating to NCU’s loan portfolio.

Shares-to-loans threshold
Mr Charleton found that 56 per cent of the number of loans had shares below the 25 per cent shares-to-loans threshold implied by the Credit Union Act 1997.

An analysis of arrears showed 80 per cent of the loan book was in “some level of arrears”. Arrears totalled €24.1 million at January 13th, 2012.

Ernst & Young’s preliminary assessment showed collateral at €4.8 million.

“NCU management claimed the collateral originally at €17.7 million. Value has not been attributed to family homes and solicitors’ undertakings held,” Mr Charleton’s document stated.

No documents provided to the court relating to the directors of NCU were available to The Irish Times last night.

On November 10th, NCU was transferred to Permanent TSB on the order of the High Court following an application by the Central Bank.