WINDFALL PROSPECTS TAKE A TUMBLE: QShould I hold on, as an investment, to my deposit in the Irish Nationwide Building Society. Is there any realistic chance now that the society will be sold? This was all the talk not so long ago.
Mr S. O'C., e-mail
AAs you say, the sale of Irish Nationwide was very much the talk up to a year ago. However, the decimation in the market for financial services companies over the past year has seen any such move very clearly put on the back burner.
The society's members have, unfortunately, simply been the victims of poor timing.
The society had lobbied the Government for a long time to amend building society legislation so that it could demutualise without the requirement to survive as a stand-alone institution for a prescribed period.
It eventually succeeded but, by that time, the market was close to turning.
The building society was in discussions with a number of parties about a sale that would have generated a windfall for members but was unable to agree a price that chief executive Michael Fingleton and his team felt fairly represented the value of the society.
Fingleton told members at last year's annual meeting that any sale was unlikely in the market prevailing at that time and, in truth, things have gone from bad to worse since then.
Irish Nationwide is one of the six Irish institutions covered by the Government's bank guarantee and has since become the first bank or building society to be fined by the Financial Regulator for misbehaviour.
The truth is that Irish Nationwide's €12.4 billion loan book is heavily exposed to the Irish and British property markets and these are currently in dire shape.
Does that mean the prospects of a windfall for members is gone. It's quite likely but not certain. Any sale or merger in the short term would be under adverse circumstances, with little benefit for members.
Having said that, unlike shareholders in banks such as Anglo Irish, who have lost most if not all of their money, Irish Nationwide members have their shareholdings by virtue of the money they have in certain accounts. Even if the windfall fails to materialise, those deposits will still be there and - at least until September 2010 - they are guaranteed.
In those circumstances, unless you particularly need the cash at the moment, it might be worth leaving it where it is, as long as the interest rate on offer is reasonably competitive.
Q My family members and myself hold shares giving us membership status in both EBS and Irish Nationwide. Both of these institutions will soon lose their mutual status. Under current conditions we do not expect any substantial windfall. Is it worth holding on? To cash out now, is it just a case of giving written notice. Will the shares be redeemed at par today?
Mr S.Q., Dublin
AYour status as members in both EBS and Irish Nationwide building societies comes by virtue of the money you have on account with these institutions in certain types of account. At present, that membership gives you rights of access and audience at the annual general meetings of the institutions.
The other incentive, which in recent years has been one of the major selling points for these institutions in attracting depositors, is the prospects of a financial windfall for members in the event that they demutualise.
Of course, the issue of windfalls, shares and the like arises only if the building societies demutualise - and that has not yet happened, despite the best efforts of the management at Irish Nationwide in recent years.
As such, there are currently no shares in issue and, thus, the issue of them being redeemed at par or on any other basis is irrelevant.
There is no current proposal to strip either of these institutions of their mutual status in the near future - although, in the current banking crisis, it is always possible that the Government or others will move to merge these institutions with others or to take them over.
As I said in the previous question, as long as you are happy with the rate of interest on offer in your account, there is little harm in leaving your money where it is. The bank guarantee guarantees all deposits in these two institutions, regardless of size, until September 2010.
If you do want to cash out, you need do no more than withdraw your money from your account. Depending on the nature of that account, you might not even need to give written notice.
Q With reference to the State guarantee on amounts up to €100,000 on deposit, will this cover be doubled in the case of joint accounts as was the situation in the past?
David Noble
AIf the money is on deposit with AIB, Bank of Ireland, Anglo Irish Bank, Permanent TSB, EBS or Irish Nationwide, the €100,000 level is a moot point as the State guarantee covers all deposits, regardless of size, until September 2010.
In the case of other institutions regulated by the Irish Financial Regulator, the Deposit Protection Scheme covers the first €100,000 per named signatory, per institution.
So, in the case of a joint account, the €100,000 threshold is effectively doubled - as long as neither of you have other accounts with the same institution.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by e-mail to dcoyle@irishtimes.com.
This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering questions.
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