The Central Bank has confirmed a December time frame for the merger of the cash strapped Newbridge Credit Union with Naas at an expected cost of ‘tens of millions’ to the tax payer.
In a questions and answers statement released by the Central Bank for concerned members of Newbridge and Naas Credit Unions on it’s website it addresses issues arising from the merger and breaks its silence for the first time since the appointment of the Special Manager in January, 2012.
It states that significant taxpayer funding will be required to cover the losses at Newbridge, adding that, as a result members’ savings will be protected and that the credit union will be on a stable financial footing.
It advises that members will hear from Special Manager with information ‘as soon as the process allows’.
It also highlights that there is no question of any member having to travel to another town to avail of credit union services.
The Q&A reads in full as follows:
1. What is happening?
Since the appointment of the Special Manager to Newbridge Credit Union (NCU) by the High Court in January 2012, the Central Bank has been actively engaged with the Special Manager to address the credit union’s financial position in the interests of protecting members’ savings. A process involving the examination of possible credit union combinations was undertaken which resulted in an approach being made to a number of credit unions, including Naas Credit Union. In April 2013 Naas Credit Union submitted a proposal to the Central Bank. The proposal set out the basis upon which Naas Credit Union would be prepared to combine with NCU. The Minister for Finance has confirmed that he is prepared, in principle, to support the proposal, which remains subject to amongst other things due diligence, negotiation of relevant documentation, Naas Credit Union board approval, regulatory consideration and High Court approval.
2. Why was a Special Manager appointed to NCU and why is it being proposed to combine with Naas Credit Union?
The Central Bank had specific concerns in relation to the level of loan losses incurred by the credit union, which impacted on the level of reserves held by the credit union. There were also concerns about some of the lending made by the credit union, which went beyond the traditional type of lending normally provided by credit unions.
Without the appointment of the Special Manager, the position of NCU would have continued to weaken and deteriorate, which could have had serious consequences.
In order to protect the position of NCU’s members, the taxpayer is going to have to advance a very considerable amount of money from the Credit Institutions Resolution Fund.
These actions have been taken by the Central Bank to place NCU on a sustainable footing to protect members’ savings and protect access to credit union services in the locality.
3. Will NCU continue to operate full credit union services?
NCU remains open for business as usual. It’s important to note that the proposal envisages maintaining and developing credit union services in both Newbridge and Naas. The full range of credit union services will continue to be provided in Newbridge after the combination and there is no question of any member having to travel to another town to avail of credit union services.
4. How will this affect NCU members?
The proposal is intended to provide members of NCU with continued access to strong local credit union services. The full range of credit union services will continue to be provided in Newbridge after the combination and there is no question of any member having to travel to another town to avail of credit union services. All credit union members would hold full membership rights in a combined credit union, including to a dividend, should one be paid.
Members are reminded that eligible savings of credit union members, up to €100,000 per member, are fully guaranteed by the statutory Deposit Guarantee Scheme.
5. When will members receive information about what has happened?
Additional information on the transaction will be communicated to members as soon as possible and, in any case, by the end of the year. It is expected that the Special Manager will contact Newbridge Credit Union members with information as soon as the process allows.
6. When will the process conclude?
The proposal remains subject to a number of requirements including due diligence and various approvals. It is expected that, if all the conditions are met, and the combination proceeds, it will conclude by the end of the year.
7. Who will pay for this?
Significant taxpayer funding will be required to cover the losses at Newbridge and this will mean that members’ savings will be protected and that the credit union will be on a stable financial footing.
The support required for the combination will be provided by the taxpayer under section 46 of the Central Bank and Credit Institutions (Resolution) Act 2011 (the Act) by the Minister for Finance.
Under the Act, the support provided by the Minister may be recovered from the Credit Institutions Resolution Fund (the Fund). In 2011, the Minister set aside €250 million for credit union resolution, and this was placed into the Fund. Under the Fund levy regulations, the credit institution sector is required to pay levies into the Fund on an annual basis.
8. Why was the Special Manager appointed to NCU?
The Court appointed the Special Manager having been satisfied that there were serious concerns relating to the financial stability of NCU. The Central Bank expects to be in a position to provide further detail in relation to the reasons for the appointment of the Special Manager at a later date.
9. What is the ongoing role of the Special Manager?
The Special Manager is there to oversee the day-to-day running of the business at NCU. NCU remains open for business as usual.
10. When will the Special Manager be finished?
The Special Manager was reappointed by the High Court on 5 July for a further period of 6 months. It is expected that, if all the conditions are met, and the combination proceeds, his appointment will conclude within the period of the current Special Management Order which expires on 12 January 2014.
11. Who will pay the Special Manager’s fees?
As a consequence of supporting the combination, obligations of NCU, including fees concerning the Special Manager, will be discharged from the Resolution Fund as provided for under the Act