wexford credit union unable to pay a dividend

moorefield

Wexford Credit Union made the national news today, including RTE's Drivetime for all the wrong reasons. The €154m credit union which has €137m of local savings cannot pay a dividend due to losses on its Anglo Irish Bank subordinated bonds and bad debt provisions.

It was forced to write off 80% of its 2.9m Anglo Irish Bank investment which it appeared to have made as far back as 2004. This money was invested in one of the bank's many subordinated bond issues which were bought out at 20% with haircut of 80%.

At the same time it seems the credit union, which does not publish its accounts on its web site, has made provisions for bad debts of an additional €5m coming from its reserves and income for the year. It would seem bad debt provisions have jumped to close to €7m which is somewhere close to 9% of its €85m loan book.

With its agm scheduled for next week 15th December in the Talbot Hotel it seems the board and management will have some tough questions to answer. At the very least they should provide a detailed note of all investments including their current market value and value at maturity along with a detailed list of all investments held.

Quoted in the Irish Times, the credit union's manager said:“The €2.99 million investment in subordinated Anglo bonds represents 4 per cent of our total investment portfolio but we would like to assure our members that we hold no other subordinated bonds in any other Irish banks.” If the 4% is correct then it means the credit union has an investment portfolio of €75m. So where is the other €72m invested and what risks have members savings been exposed to?

Whatever else its 33,000 (or is it 28500?) members will probably be unhappy they are not being paid a dividend this year - many may rue not having their savings with one of the local banks who are paying some quite attractive rates.

oldyouth

I'm an ordinary member of Wexford Credit Union. They made an investment decision in Anglo Irish Bank, like so many other institutions, and it has backfired.

It is just another example of the mess that the Country is in but I personally don't have any less regard for the Credit Union, as I remember this town when it was run by money lenders.

The Credit Union still supports people who do not suit the usual banking channels and hopefully they will be around when we need them most.

I've re-read the OP's post a few times and I'm still not sure of the intent of the statement, whether it is supposed to be informative or critical.

PeakOutput

its a non issue really

there are plenty of companies that havnt been paying dividends the last few years, it being a credit union with investments in anglo dosnt make it any more news worthy imo

Ledger

New Ross CU had they're AGM last week which i attended, they're paying 0.5% of a dividend this year, and seemed to have not done as badly in the last year as was probably expected due to pay cuts taken by staff and other measures taken by the financial controller.

They also had investments in Anglo which were invested in around 2005 IIRC.

moorefield

The IMF/ECB/EU bailout and ECB 180bn+ funding support for the Irish banking system includes the credit union sector - even if credit unions are not in direct receipt of funding they would nonetheless close tomorrow if that funding was withdrawn. Banking is set to be restructured as are credit unions. See here:A significant strengthening of the regulation and stability of the credit union sector will be carried out by end-2011. These measures will be based on the results of the Central Bank’s loan book review, the Central Bank’s sector-wide stress test and the outputs of the Strategic Review of the credit union sector.

The line is quite clear, "strengthening stability" means that financial stability is a significant problem.

Any credit institution whether a bank or credit union unable to pay interest on household deposits is a deeply troubled firm. It just so happens that Irish credit unions are able to dodge paying interest by clinging onto the dividend concept -imagine what would happen if a bank said tomorrow that it wasn't able to pay any interest on deposits and you begin to develop an understanding of just how serious this issue has become.

oldyouth

Why are all your posts about Credit Unions in different parts of the country?

moorefield

Here's a few questions that may help surface some issues:

Dividends
When do you expect to be able to pay a dividend again? And why?


Loans
Section 35 of the Credit Union Act: This part of the act says only certain % of loans can be over 5 years and over ten years. (Breach of this is an offence)

Has the credit union been compliant with section 35 every year since 2005?
If non-compliant when did it or will it achieve compliance?

Did it apply for extended lending limits after 2007 and was it approved? If not approved ask for an explanation.

Why has a schedule of loans under 5 years, greater than five but less than ten and greater than ten years not appeared as a note in the accounts?

Has the credit union ever been subjected to a regulatory inspection, direction or restriction in carrying on business? If yes, ask for an explanation for the direction or restriction.

Bad loan provisions
Has the credit union been required to increase its provisions by the regulator and why?

What is the anticipated provision for next year and anticipated write offs?

What additional bad debt provision was provided for rescheduled loans under revised section 35 limits? How many loans and what value of loans were rescheduled during the year?

Why do you not show general and specific provisions in your accounts?

Why do you not show an aged schedule of delinquent loans and attaching provisions in your accounts?

New Loans
What as the rate of decline in the last two years?

What will the effect be on interest income from the declining loan portfolio?

Margin
What is your gross and net operating margin and how does this compare to last year? What do you expect it to be next year?

Inter credit union loans
have you a loan from another credit union, how much and reason for the loan?
have you lent to another credit union, how much and the reason for the loan?

Are you in receipt of or are you looking for assistance from the ILCU savings protection scheme?

Liquidity & Investments
Are you compliant with regulatory liquidity requirements?

If not when will you achieve compliance?

Why have you not shown in your accounts a breakdown of cash and investments by asset class, maturity and open market values?

Can you explain how you are accounting for the difference in open market value and book value of investments?

When you say guaranteed at maturity what does this mean?

How have you been satisfied that investment providers will be able to stand over their guarantees?

Have you obtained a report and analysis of your investment portfolio from a body independent of your current investment advisors?

Are you fully compliant with the regulators investment guidelines? If not can you explain what investments are not?

What is your position on the Davy perpetual bond settlement? (Where and if applicable)

P. Breathnach

oldyouth wrote: »

Why are all your posts about Credit Unions in different parts of the country?

Good question. Where somebody is trying to influence members' perceptions of their local CU, I think that person's credentials and bona fide should be considered.

oldyouth

You took a long time to put up your last post OP but didn't bother replying to my question. I'll ask again, why the fixation about Credit Unions around the Country?

ihatetractors

oldyouth wrote: »

You took a long time to put up your last post OP but didn't bother replying to my question. I'll ask again, why the fixation about Credit Unions around the Country?

Must have a chip on their shoulder i suppose?

timmywex

At the end of the day, and reading the accounts that were sent out to every member, they were hugely positive.

Yes there are no dividends, yes there was quite big wriite offs due to bad debt, but it still is one of the strongest financial institutions in the country!

Think about it, they would pay out dividends of about 3million, thats huge by any standards tbh!

moorefield

"Members of credit unions should expect nothing less than the highest level of governance and competence from boards and managers of credit unions and prudence in the management of their funds. Members should also be able to rely on the highest level of oversight by supervisory committees in credit unions to gain comfort that their credit union is being run in a careful and prudent fashion. It is vital therefore that directors, managers and supervisors in credit unions are competent and capable to fulfill the roles for which they are responsible......

The starting point in solving any problem is to recognise that there is a problem in the first place. If individual credit unions don’t face up to their current business difficulties they are risking their future and possibly that of the sector overall, given the indistinguishable nature of the credit union brand between credit unions and so the potential for contagion to spread....

The current credit union operational model is coming under increasing stress. It must be recognised that not all credit unions will make it through this difficult financial and economic environment in their current structure. We must prepare for this. We expect that the economic downturn will continue to expose those credit unions that do not have the financial strength to weather the current difficulties – either because of insufficient reserves or because of poor management and business decision making.....

As yet it is unclear as to the level of restructuring that is likely to take place over the next couple of years. However it cannot be ignored in that we are now seeing an increasing number of credit unions coming under financial stress. The trend in arrears is continuing upwards and the opportunities for prudent lending are decreasing. Income is depressed and costs are either remaining static or increasing......

Directors and managers should now be looking closely at their own operations and drawing up projections and business plans to establish the financial capability of their credit unions to withstand further shocks on their business and taking the necessary preventative action. Where a credit union concludes that it may no longer be viable on a stand-alone basis, directors should be proactive and take the necessary steps to explore transfer opportunities with other credit unions to ensure continuity of service for their members.....

A failure of one or more credit unions could lead to a significant loss of confidence across the sector. This must be avoided."

Members should attend the AGM and judge for themselves whether the credit union has drawn up projections, has a viable business plan and the financial strength to withstand further shocks.

oldyouth

OP, are you making speeches or inviting discussion?

P. Breathnach

oldyouth wrote: »

OP, are you making speeches or inviting discussion?

I doubt if you are going to get an answer. OP seems to be on a mission, the exact objective of which is unclear, but which involves casting FUD on credit unions.

I got no change from OP in this thread but, more important, he failed to give any solid backup to his suggestions that CUs were in trouble: http://www.boards.ie/vbulletin/showthread.php?t=2056099602

moorefield

ILCU has a letter in the Irish Examiner today in which it says credit unions only have €4.8m invested in Anglo subbies - it goes on to say that credit unions have €28m invested in Anglo. It doesn't say if these investments are in Anglo bonds - they probably are given than credit unions have many tens of millions on deposit with Anglo

Given WCU's exposure of €2.9m what then? It seems if trade body ILCU is to be believed, WCU is only one of a tiny handful (probably less than 5) credit unions that got caught holding Anglo subbies.

Of course investing in subordinated loan stock is something only the most sophisticated investor would have the recognised competence to do. Credit unions are not regarded as sophistiacted investors by the financial regulator. They are considered no more competent than the ordinary person on the street. Which begs the question were subordinated bonds prudent investments for credit unions to make?

For those who are questioning my posts; I distinguish between credit unions and their boards and management. The credit union sector should be supported and provided with whatever state assistance is required as it is systemically important. Individual credit unions are not systemicaly important.

Poor goverance and management, tolerated for far too long has resulted in the destruction of community capital - capital needed to ensure credit unions continue to do what they do best.

Which is why members should attend the AGM and judge for themselves whether the credit union board and management has drawn up projections, has a viable business plan and the financial strength to withstand further shocks.

moorefield

@ P Breathnach : Time passes and your gate-keeping has been exposed. 80 credit unions are in trouble and will not survive an independent entities - they will likely be merged with others. And that is only the start of a consolidation and stabilisation programme that may cost according to Professor Ray Kinsella (a long time supporter of credit unions) upwards of €1.5bn. See here for data and here for a typical story of what went wrong.

My attention has been on urging people to get involved in their credit union by getting boards and management to account for their stewardship which has resulted in losses on investments that should never have been made and loans that should never have been granted - including speculative property development lending (in some cases to directors and their relatives). The result is clear within the data now emerging - hundreds of millions will be written off community capital - capital badly needed now - through the bad governance and mismanagement of many credit unions.

One analyst estimated that had credit unions been run properly they would have generated an additional €1.5bn in capital - instead this "profit" was handed over to the banks and investment advisers and as credit unions failed to modernise their operations they incurred hefty costs. All told if the true story is ever told it would show how hundreds of millions in community capital was squandered through the hubris, bad governance and management of a generation of directors and managers whose sole objective was to maximise dividends. It was in effect a pure "for profit" strategy aimed at maximising surpluses to pay out as dividends.

oldyouth

More speeches from OP, yet no responses put to numerous questions to him/her

David900

The OP should be banned from the Wexford forum and this thread closed as he won't partake in the discussion and obviously has a hidden agenda he is trying to advertise.

.....Can I be mod around here?

jpb1974

The OP should be banned from the Wexford forum and this thread closed as he won't partake in the discussion and obviously has a hidden agenda he is trying to advertise.

Agreed.

moorefield

how do you advertise a hidden agenda and keep it hidden? What questions haven't been answered?

moorefield

Try posing these questions to the credit union

moorefield wrote: »

Here's a few questions that may help surface some issues:

Dividends
When do you expect to be able to pay a dividend again? And why?


Loans
Section 35 of the Credit Union Act: This part of the act says only certain % of loans can be over 5 years and over ten years. (Breach of this is an offence)

Has the credit union been compliant with section 35 every year since 2005?
If non-compliant when did it or will it achieve compliance?

Did it apply for extended lending limits after 2007 and was it approved? If not approved ask for an explanation.

Why has a schedule of loans under 5 years, greater than five but less than ten and greater than ten years not appeared as a note in the accounts?

Has the credit union ever been subjected to a regulatory inspection, direction or restriction in carrying on business? If yes, ask for an explanation for the direction or restriction.

Bad loan provisions
Has the credit union been required to increase its provisions by the regulator and why?

What is the anticipated provision for next year and anticipated write offs?

What additional bad debt provision was provided for rescheduled loans under revised section 35 limits? How many loans and what value of loans were rescheduled during the year?

Why do you not show general and specific provisions in your accounts?

Why do you not show an aged schedule of delinquent loans and attaching provisions in your accounts?

New Loans
What as the rate of decline in the last two years?

What will the effect be on interest income from the declining loan portfolio?

Margin
What is your gross and net operating margin and how does this compare to last year? What do you expect it to be next year?

Inter credit union loans
have you a loan from another credit union, how much and reason for the loan?
have you lent to another credit union, how much and the reason for the loan?

Are you in receipt of or are you looking for assistance from the ILCU savings protection scheme?

Liquidity & Investments
Are you compliant with regulatory liquidity requirements?

If not when will you achieve compliance?

Why have you not shown in your accounts a breakdown of cash and investments by asset class, maturity and open market values?

Can you explain how you are accounting for the difference in open market value and book value of investments?

When you say guaranteed at maturity what does this mean?

How have you been satisfied that investment providers will be able to stand over their guarantees?

Have you obtained a report and analysis of your investment portfolio from a body independent of your current investment advisors?

Are you fully compliant with the regulators investment guidelines? If not can you explain what investments are not?

What is your position on the Davy perpetual bond settlement? (Where and if applicable)

moorefield

You might add this one:

How much state funding will you need to stabilise your operations and will you be required to merge with other credit unions?

How many credit union boards would be brave enough to commission an independent report into the governance and management of the credit union and publish this to their members? How else will lessons be leaned? Or is it the case that the stable door will be quietly closed on the story of how millions in community capital was squandered?

jpb1974

Try posing these questions to the credit union

Why don't you go and get the answers to the questions you keep posing and satisfy yourself?

At this stage nobody on this thread seem interested in reading what you have to say so maybe you should pose this question to yourself -

"Is it time to quit rambling and spouting shíte on this thread when nobody who uses the Wexford forum seem to care less"

Go post in a more relevant forum where finance is the order of discussion.

David900

moorefield wrote: »

how do you advertise a hidden agenda and keep it hidden? What questions haven't been answered?

Ok I admit it is badly phrased but I think people got the sentiment of what I said, you won't state your credentials or your relationship to the credit union industry and you're obviously promoting a smear campaign against them.

I'm a member of the Wexford credit union and I can't see why there is a big deal about this. Credit unions pay a dividend, not interest therefore they pay it out of their profits. If the company does not make a profit then you get no dividends. They are no different to any company in that regard. If people want interest on their savings they go to a bank. Simples.

I didn't read your questions as while I feel you know a lot about the credit union area, you can't seem to grasp business and finance. One question I will ask though is when did the credit union buy these Anglo bonds? I presume that Wexford Credit Union only trades and invests in investment grade bonds so if they purchased these bonds when they were investment grade then they have done nothing wrong. You might have come across a flaw in the investment market in this regard but not Wexford Credit Union's investment managers. There might be aspects of a credit union's business plan I don't like but that's a different argument, so I can't see what your argument is here.

moorefield

@david the wider question is why did some invest in subordinated bonds including perpetual bonds and others did not? Why did some unwind from high risk investments in 2007 and others did not? why are some providing for far higher levels of bad debts than others? why are some able to pay a dividend and others are not? All were exposed to the economic downturn with many acutely exposed ergo inability to pay a dividend.

Credit unions are limited in the type and risk profile of investments they are permitted to make. In 1998 a change to trustee investment laws unwittingly resulted in widening the risk parameters for credit unions. It took until late 2006 before the regulator was able to unwind the 1998 decision by McCreevy when Finance Minister (who was not the minister responsible for credit unions at the time). By 2006 many credit unions led by the ILCU had engaged in a high risk investment strategy - one which would not have been permitted in any other credit union jurisdiction. The result was significant losses in instruments they should never have invested in. Some boards took a prudent approach and did not get sucked into what the regulator called an ill-advised strategy and policy to expose savers funds to investment risk.

Your point on dividends is correct when considering ordinary business but credit unions are not ordinary businesses - they are licensed and regulated credit institutions. Their dividends are more akin to deposit interest and not the share of profits paid to shareholders in joint stock banks. When a credit union cannot pay a dividend it's an indication that solvency could be a problem as in making lossses - these losses can only be funded from reserves. The questions I have listed are aimed at getting behind the annual accounts. They would of course have to be posed by someone skilled enough to understand the answers and probe deeper.

The problem for many credit unions is they cannot generate sufficient surpluses to fund bad debt provisions, maintain regulatory reserve levels and pay a dividend to savers. Nor will be they able to trade out of this scenario. This is why consolidation and stabilisation funding is being muted - the outcome - credit unions will need to think about county rather than parish/town based common bonds. Makes sense to amalgamate and then work through this recession. Thus the future for Wexford and many others may be to merge and deliver services at a county level.

David900

You make good points in that last post, I really don't know enough about credit unions to argue some of them. The whole business of credit unions always seemed strange to me. I know unemployed people who can borrow money from them, now if that isn't sub-prime lending I'm not sure what it is.

Also I'd agree with the amalgamation of credit unions into county wide institutions, it always seemed strange to me the size of some of them. Murrintown has one for example, for all I know it may be part of the Wexford branch but then again it may not.

I'm not sure I'd agree about the dividends either - yes credit unions are meant to be regulated but you would expect any financial institution to have cash flow problems in largest financial crisis in history.

I still can't understand why you won't reveal yourself though and tell us your link to credit unions I haven't looked at your post history but by the sounds of it you've been posting this on other county forums too. Again I think this thread should be closed if you don't.

moorefield

@david900. I hope you'll respect my anonymity as I do yours. Trawling through the irishcuvoice.com blog I found this piece from May 2008 which appears to capture what went wrong with credit union investments.
The dividend issue is quite clear. People who save with credit unions are unsophisticated savers who trust that their money is safe and sound and trust their credit union to pay a decent rate of return. Frequently their entire life savings are held by their credit union. They do not consider their savings as some form of risk capital that will generate a dividend as in the case of a plc's shares. If a credit union cannot pay a dividend then this is a form of financial abuse.

Johro

Banks exist and thrive through financial abuse.

badgerbroc11

moorefield wrote: »

Here's a few questions that may help surface some issues:

Dividends
When do you expect to be able to pay a dividend again? And why?


Loans
Section 35 of the Credit Union Act: This part of the act says only certain % of loans can be over 5 years and over ten years. (Breach of this is an offence)

Has the credit union been compliant with section 35 every year since 2005?
If non-compliant when did it or will it achieve compliance?

Did it apply for extended lending limits after 2007 and was it approved? If not approved ask for an explanation.

Why has a schedule of loans under 5 years, greater than five but less than ten and greater than ten years not appeared as a note in the accounts?

Has the credit union ever been subjected to a regulatory inspection, direction or restriction in carrying on business? If yes, ask for an explanation for the direction or restriction.
Bad loan provisions
Has the credit union been required to increase its provisions by the regulator and why?

What is the anticipated provision for next year and anticipated write offs?

What additional bad debt provision was provided for rescheduled loans under revised section 35 limits? How many loans and what value of loans were rescheduled during the year?

Why do you not show general and specific provisions in your accounts?

Why do you not show an aged schedule of delinquent loans and attaching provisions in your accounts?
New Loans
What as the rate of decline in the last two years?

What will the effect be on interest income from the declining loan portfolio?

Margin
What is your gross and net operating margin and how does this compare to last year? What do you expect it to be next year?

Inter credit union loans
have you a loan from another credit union, how much and reason for the loan?
have you lent to another credit union, how much and the reason for the loan?

Are you in receipt of or are you looking for assistance from the ILCU savings protection scheme?

Liquidity & Investments
Are you compliant with regulatory liquidity requirements?

If not when will you achieve compliance?

Why have you not shown in your accounts a breakdown of cash and investments by asset class, maturity and open market values?

Can you explain how you are accounting for the difference in open market value and book value of investments?

When you say guaranteed at maturity what does this mean?

How have you been satisfied that investment providers will be able to stand over their guarantees?

Have you obtained a report and analysis of your investment portfolio from a body independent of your current investment advisors?

Are you fully compliant with the regulators investment guidelines? If not can you explain what investments are not?

What is your position on the Davy perpetual bond settlement? (Where and if applicable)

@ Moorefield. I have just received notice of this years AGM for my Credit Union and was looking up what I should ask when I came accross your list above. Last years AGM was a joke (wasn't at it, but neighbour was). Is this list still valid or are there new questions we should be asking?

oldyouth

Your first post badgerbroc11 and you want to wake the beast

badgerbroc11

I seem to leave a trail of destruction behind me in the real world. Looks like I'm bringing it online as well. It's not intentional - Honest!!

oldyouth

Only kidding my friend. Prepare yourself to be subject to a one way discussion when it awakes (and it will awake)

badgerbroc11

That sounds ominous! Lets see what happens. I like factual, sensible debates just likewhat we get from our politicians and media.

badgerbroc11

Wexford credit union seems to have weathered the worst of the financial storm. In a position to pay a dividend again this year. See link. http://www.wexfordpeople.ie/news/no-bailout-needed-for-wexford-cu-2910780.html

I think when we look back at ask the mistakes made in financial institutions, credit union will come out well. The small credit union appears to be a lower risk model than the big banks, even with all the serious goverence issues