Credit unions get whacked
THE value of a bond used by Davy stockbrokers to compensate credit unions for losses on other bonds -- which had previously been sold to them by Davy -- has plummeted by between €12m and €19m.
The sinking value of the bond will be another headache for credit unions, where loan arrears and investment losses prompted the Government last week to say it would pump up to €1bn into the sector.
The bond, an IL&P subordinated bond, has a face value of about €24m and is due to mature in 2018. Currently it is, at best, worth about half its face value, say stockbroking sources. However, one well-placed broker said a €12m valuation was "on the high side" and that the bond could be worth just a fifth of face value.
If this is so, credit unions holding that bond face losses of €19m. However, as credit unions have already written down the value of the bond in their accounts, the losses they would record if they were to sell the bond today would be a lot less.
Last June, when the bond had a face value of €54.6m, IL&P offered to buy back the bonds from credit unions at about 20c in the euro. About six out of 10 of the credit unions who held the bond at the time accepted the offer and shared a loss of €11m between them, says the Irish League of Credit Unions.
Sunday Indo Business