Throughout Ireland people are concerned their local credit union is in a spot of trouble. With over 200 credit unions probably unable to pay a dividend (interest) to savers this year many are facing what could become a run on savings as the penny drops on what has being going on. The “volunteer” directors of Ireland’s people’s banks lost the run of themselves, forgot how to lend money and blew a €500m hole in their risky investment portfolios. The number keeps getting larger as losses refuse to go away no matter how much some massage their accounts.
The crisis is so big it’s taken the wind out of the Irish League of Credit Unions (known as the League) who recently proclaimed credit unions being twice as safe as banks! Oops bit of a slip up there! Then again it once talked up its tiny bail out fund as offering a “discretionary guarantee” should a credit union fail calling a government guarantee a “death fund”. Mind you the League has been well fingered for leading the charge in promoting the risky investment strategy that led to the losses.
Well it seems Irelands bunch of “enthusiastic amateurs” (regulatory expression- not mine) are thumping the table demanding to be allowed to dip into their capital reserves to fund dividend payments and are demanding a NAMA type solution to sort out their investment losses.
Thing is at €500m of an investment book of €7bn, credit union losses approach Anglo’s proportions in relative scale before their bad loans are factored in. And to make matters worse you can’t add one credit union balance sheet to another. One credit unions large losses, cannot be offset another’s lower losses.
To boot while they appear awash with cash as less than €5 in every €10 of €11.5bn in household savings lent out they are also illiquid. Yup they are invested in stuff they cannot back out of without losing more money. The regulator has told many, including some quite large operators, to cut back on lending.
What’s to be done? Seems as if a bail out scheme will have to be cooked up before credit union’s annual round of AGM’s kicks off later this year or else all hell will break lose.
As people wise up to the fact a credit union can only pay interest to savers from profits made and “no profits = no interest/dividend” many are beginning to move their money elsewhere.
Others are asking their credit union if it will be able to pay a dividend this year and if not why not?
Just how much the bailout will cost is anyone’s guess as no one is providing a scintilla of data save to say that “some” are in trouble etc…