Liquidator appointed to Berehaven Credit Union

Brendan Burgess

Founder
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http://www.irishtimes.com/business/...-order-to-wind-up-cork-credit-union-1.1875751

Is this the first time a liquidator has been appointed to an active Credit Union? ptsb took over the assets and liabilities of Newbridge, before a liquidator was appointed.

It's a bid odd that the ILCU allowed a member to collapse? However, it sounds as if they had no option, if the board was resisting making any changes.
 
The other concerning part is that questions were raised in 2010 and yet the next review doesn't seem to have been done for 4 years and then suddenly it is liquidated in a month? I am sure it's not as straight forward as that but I would like to hear the full story.
 
I am not allowed to post a link but the Resolution Report is on the Central Bank website and is quite detailed.

The Central Bank are claiming that it was cheaper to liquidate the Credit Union than to pay another Credit Union the €1.3m required to recapitalise it in order to take it over. Unlike Newbridge this was an ILCU Credit Union so it will be interesting to hear what they have to say about it.
 
Page 2: As at 30 June 2014, based upon the Prudential Return submitted by BCU to the Registry of Credit Unions (“RCU”), BCU had 3,500 members, total savings of c. €11.3 million and total assets of €11.4 million of which gross loans (pre-provisions) comprised c. €1.7 million.


So it has loans of only 1.7m. (Was €11.5m at 30 SEpt 2009)

What are the other €10m of assets?


 
This is particularly worrying as it suggests a structural problem for all credit unions:

 
Point 67 - there are no depositors over €100,000

 
The fees for the liquidation will be €400k


73.3 total assumed liquidation expenses (including liquidator fees, staff redundancy costs, legal costs, ancillary costs (travel and accommodation etc.) and a liquidation contingency) are €400,000.
 


If the valuation of the €1.7m loan accounts after provisions is only €200k , why do they not just transfer them to another credit union in the area and pay the acquiring Credit Union 10% of any cash recovered?
 
All lenders will pay the cost of this.

92
A further important factor in relation to the cost comparison between transfer and liquidation relates to the question of who bears the costs. The DGS would be invoked in the event of a liquidation. Each credit institution covered by the DGS is required to maintain a
balance in the Deposit Protection Account (the “DPA”) equivalent to 0.2% of their total deposits in order to fund the DGS. When compensation payments are made by the Bank out of the DPA, the amount paid is pro-rated against the holding of each credit institution. At year end each credit institution is required to replenish its holding in the DPA to the required level. In this manner, the cost of insuring the depositors of a liquidated credit institution is borne in full by the credit institutions sector itself.
 

Point 22

Furthermore, due to a contraction in domestic property prices, BCU booked impairments on its fixed assets
resulting in a current carrying value of €635K.
Click to expand...


Presumably the remainder of the assets is investments which should be fairly liquid. The sale of the premises and investments should pay for a large part of the deposit guarantee scheme payout of €11.3m and the liquidators fees of 400k.
 
I am surprised that we are not given any details of the investments. They might be long term investment products.

It would be hard to sell an office investment property in Berehaven!
 
Brendan Burgess said:
If the valuation of the €1.7m loan accounts after provisions is only €200k , why do they not just transfer them to another credit union in the area and pay the acquiring Credit Union 10% of any cash recovered?
Click to expand...

The acquiring Credit Union would probably have to take over all the assets and liabilities of BCU including its share accounts, premises and investments. The acquiring Credit Union would have to increase their own statutory reserve by 10% of the assets acquired plus they would want to be compensated for the deficit on the BCU balance sheet. Taking all that into account they probably would have looked for compensation of something around €2m which the CBI has calculated is higher than the deficit on liquidation.

Also as you said above Brendan the deficit on the liquidation will actually be paid for by other Credit Unions and the Banks through the DGS whereas any compensation payable to an acquiring Credit Union would have to be funded by the Central Bank / Department of Finance. Although any such cost would probably be recouped from other Credit Unions at a later stage through an industry funding levy.
 
The first thing that needs to said is that the 10% Regulatory Reserve Ratio is BOGUS.

1. It is against ALL assests so that if you had 100% Government Bonds it would still require 10% reserve.
2. It does not distinguish between risky and less risky assets.
3. It is exclusively drawn from Retained Earnings.
4. No other form of equity is seemingly encouraged or facilitated.
5. The concept of shares should be divided between equity and savings i.e. the ownership should change to those that are prepared to put up permanent risk capital .
6. The central bank would e exposed if there was a judicial review focused on:
- the regulatory reserve ratio;
- the restrictions on lending because of the mindless focus on a bogus ratio.
 


What's bogus about it? There is nothing to stop credit unions that are sophisticated enough to move to a risk based regulatory reserve ratio.
 
Brendan Burgess said:
I am surprised that we are not given any details of the investments. They might be long term investment products.
Click to expand...

You've analysed credit unions before and it's always interesting even if I don't fully understand the structures.

But for this one, do you agree or not that liquidation was the correct course of action? (f you have the time)
 
Hi Bronte

It's a bit hard to follow the report.

It seems that the guys in charge should not have been in charge There was no real way of forcing them out other than liquidation.

As well as that, they have the following huge problem: They have €11.6 m in shares but only €1.6m in loans. There is simply no demand for loans in the economy.

The directors should have accepted that the CU was unsustainable, but probably solvent. They should have sought an orderly wind down by telling their customers to withdraw 90% of their savings.

If everyone took out all their savings, they would be short around €1.7m in cash until the loans get gradually repaid. The ILCU should have lent them this money. They would probably get most of it back and they would prevent the huge damage this has done to confidence in the credit unions generally.
 
What is the real story here ?

Why is nobody ( Morning Ireland etc ) referencing the situation with the former inspector, Manageress and Treasurer of the CU having joint loans on foreign property ?

off topic content removed - please do not take this thread off topic by general conspiracy theories about the Central Bank and the Credit Union movement. Feel free to discuss them in a separate thread. Thanks - Brendan
 
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