You know who calls the shots
Once again, the bond markets are calling the shots
Newbridge Credit Union offices, Co. Kildare. Photograph: Bryan O’Brien / The Irish Times
The Bottom Line: It’s an Irish solution to an Irish problem. The taxpayer bails out Newbridge Credit Union (NCU) to the tune of €54 million and nobody is held to account. It’s like the banks in 2008 all over again except that things were supposed to be different now.
On that point, it’s worth noting that the fitness and probity regime in relation to directors and senior executives that is operated by the Central Bank has only applied to credit unions since August 1st and only for those credit unions with total assets greater than €10 million. For the balance of credit unions, it won’t apply until August 2015. It is not restrospective.
The Central Bank’s new enforcement sanctions also took effect for credit unions on August 1st and, again, are not restrospective. Who is responsible for this debacle?
In his affidavit to the High Court for last Sunday’s emergency sitting, which led to NCU being acquired by Permanent TSB with assistance from the State, Patrick Casey, the head of resolution mergers and acquisitions in the special resolution unit of the Central Bank reminded the judge of the “very serious condition” NCU was in following “poor governance” and inadequate controls over several years. In the three years to September 2011, €3.9 million of loans were written off and an additional €36.3 million of bad loan provisions were booked. Provisions increased from 3.4 per cent of gross loans to 30.5 per cent over the period while the total realised reserve ratio fell from 14.6 per cent to 5.4 per cent. Members’ savings fell by more than 20 per cent over the period to €152 million.
Questions must therefore be asked of the board of directors, chaired by Ben Donnelly, and management of NCU who set the lending policy that blew up in its face. It was their strategy that failed spectacularly and left the institution in crisis.
Casey’s affidavit noted a report prepared by auditors for the board of NCU in December 2011 that highlighted 603 “special examination loans” totalling €40.3 million. These were non-standard loans, identified for write-off, and loans with bullet-type payments at the end of the repayment terms. “Such loans are not common in the credit union sector,” Casey added.
I’ll say. Twenty six of these loans added up to €14.3 million or an average €550,000. This is far and above the types of loans that you would associate with the country’s biggest “community” credit union. The average loan in the credit union sector at the end of 2011 was €7,764 compared with €17,281 at NCU.
Not so fast, say the directors, who issued a statement yesterday stating that after “two years of direct Central Bank intervention with all management responsibility in the hands of the Special Manager [Luke Charleton of Ernst & Young], what started as debatable concerns about bad debt provisioning ended up as an acute liquidity crisis forcing an urgent transfer to a commercial bank”.