ORDINARY credit union members were burned to the tune of a €600,000 haircut as a result of the Government’s move to bail out the banks.
So it emerged this week at the Portlaoise Credit Union AGM where members were given some details on why they had taken a hit of 58 per cent on investment income.
When a member questioned the directors on the loss at the AGM, the Chairman Philip Coonan said a loss of €600,000 had been suffered on guaranteed bank bonds worth €1million. He said this was caused by a Government removal on a guarantee.
More details were provided after the meeting. Mr Sean Dunne, Portlaoise CU’s manager, told the Leinster Express that the loss was the result of a “burning of bondholders or haircut” facilitated by the Credit Stability Act which came into law in 2011.
The bonds were guaranteed to yield a €1million return from two banks, Bank of Ireland and Permanent TSB until the Act became law. Once enacted it gave the former Minister for Fianance Brian Lenihan the power to burn bondholders such as the Portlaoise CU as part of the process of bailing out the commercial banks.
When the bonds during the boom were secured they were deemed a wise investments because of the spectacular success of the Irish banks.
Trudy Nealon’s treasurer’s report put the loss down to global problems. The loss contributed to a 27% loss in income to €2.24 m.
“Our investments suffered due to the impact of the global financial turmoil has had on Ireland with investment income decreasing by 58 per cent to €346,253,” said her report.
Sean Fleming TD was a member of the Fianna Fail led-Government that introduced the law which burned the credit union. He said the taxpayers should not have to cover the losses of the credit unions and banks.
“The Credit Union agreed to take the write down voluntarily. Obviously their backs were too the wall and it was felt better to take the write-down. If you are asking the taxpayers of Portlaoise to pay money into the banks for the write down and then put more money into the Credit Union on the double so the Credit Union does carry the write down - I think the taxpayer paid once heavily for the banks, they don’t want to pay again,” he said..
The treasurer’s report said the 2011/10 financial year had been extremely challenging but the Portlaoise CU “is in a very strong position” with €53.1 million in assets. She said €8.64 million had been issued in loans.
Total spending was €1.84 down 30% on last year and members were given a 0.5% dividend from the €406,576 surplus.
In his chairman’s report Mr Coonan emphasised the power of the Financial Regulator who he said has forced the postponement of some AGMs. He said Credit Union movement restructuring was on the cards and he was in doubt about amalgamations taking place although the said offices would not close.
While he spoke of tougher times he urged people to go to the credit unions instead of money lenders. He blamed the low dividend on the falling loan book.
The meeting heard that €663,216 was charged off in bad debts but bad debt recover had increased to almost €100,000. More than €2m is set aside to cover bad debts. Mr Dunne said many “top-up” borrowers had end up being bad debts.
Membership increased to 12,593 but there are nearly 6,000 dormant accounts.