Inside the world of business
Credit unions gather before soul-searching begins
WHILE MOST people in Belfast were enjoying a bank holiday yesterday courtesy of the royal wedding, some 1,500 people were gathering in the city for the annual general meeting of the Irish League of Credit Unions.
The timing is apt. This weekend also marks a key deadline for the credit union sector under the terms of the EU-IMF bailout. Stress tests on the balance sheets of Ireland’s credit unions were to have been completed by the end of April, with special resolution legislation to be introduced by the end of the year. It is understood that the stress tests are close to completion, while serious work on introducing a new regulatory framework for the sector has begun in earnest.
With the dramatic restructuring of the banking sector announced last month bringing some sort of closure to the banking issue, attention has increasingly been focused on the credit unions. Although small fry compared with their banking brethren, speculation has mounted over the last month that the country’s 400-plus credit unions may be collectively facing exposure of up to €1.5 billion on their loans if the same stress-test criteria are applied to them as was applied to the banks. This figure has been sharply disputed by the credit union sector.
This is in addition to the hundreds of millions of euro in losses that may be incurred by some credit unions that invested in subordinated Irish bank bonds.
Whatever the figures, the industry is undoubtedly in dire need of a shake-up. The very fact that there is such ambiguity about the scale of the losses faced by credit unions is indicative of the lack of transparency that surrounds the sector. A more formalised accounting process is expected to form a central strand of the new special resolution legislation. Consolidation is also on the cards, as indicated by Central Bank official Jonathan McMahon earlier this month.
Credit unions have in the past offered a unique and useful service to savers and borrowers. However, some serious soul-searching is required over the next few months if they are to retain their place in Ireland’s new, radically altered, financial landscape.
Sub-contractors hold breath
When the new Seanad convenes a lot of employers will be hoping that Feargal Quinn will revive a piece of legislation that he was championing before the last Oireachtas dissolved in February.
At the time, Quinn was shepherding a Private Members’ Bill through the house that would have reformed the law governing construction sub-contracts. The industry is generally agreed that the current system means that sub-contractors are carrying too much of the risk.
The result is that many of them who are substantial employers in their own right have been left high and dry in liquidations or receiverships, where, as trade creditors, they have no security and have to take whatever’s left once the secured creditors’ claims have been satisfied.
When Pierse Contracting went under last year, its lawyers acknowledged in the High Court that the trade creditors were unlikely to get very much of the €50 million they were owed.
Quinn’s Bill allowed for stage payments and dispute resolution procedures that would have reduced, but not eliminated, the risks faced by sub-contractors. It had the backing of the Construction Industry Federation and many individual firms in the business.
The changes would apply in the future. So that means the new law is not likely to solve the problems that are being faced by businesses who lost out in high-profile failures such as Pierse and McNamara last year.
Time Silicon flights resumed
Pressure is mounting on the Government to do something about the lack of direct flights between Ireland and Silicon Valley.
Aer Lingus cut its Dublin to San Francisco route in October 2009, citing a 19 per cent fall in average long-haul fares and “weak economic conditions and consumer confidence on both sides of the Atlantic”.
Economic conditions in the US have certainly picked up in the interim and the campaign for a direct flight has now received the backing of the Silicon Valley Leadership Group. Founded in 1977 by David Packard (of Hewlett Packard), the group has 340 member companies, which employ more than 250,000 people in California and have combined global revenues of more than $2 trillion.
More importantly this group’s members – companies like Google, Intel, HP, Facebook and Oracle – have propped up Ireland’s ailing economy during the current crisis.
While Aer Lingus is now a public company, the State retains a 25 per cent shareholding and has three directors on the airline’s board.
There are many high-cost proposals to kickstart Ireland’s “smart economy”. The restoration of a direct flight to Silicon Valley would not be costly if approached in the right way.
It would fall to Minister for Transport Leo Varadkar to put pressure on Aer Lingus to reinstate the route. Or to sell the proposal to a US or international airline.
As one of the few young bloods in the Cabinet, and one who seems to have real ambitions to take on a serious economic brief, he could do a lot worse than take on this cause.
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