Tuesday 23 October 2018

Bust credit union faces takeover by State bank

PAC report warns Irish banks vulnerable to repeat of the 2008 banking collapse

Charlie Weston and  Daniel McConnell

THE Central Bank is to apply to the courts next week for permission to allow Permanent TSB to take over one of the largest credit unions in the country, the Sunday Independent has learned.

The move will send shockwaves through the 2.8 million people who are members of 392 credit unions in the State.

In what is set to be the first-ever attempt by a bank to take ownership of a credit union, emergency financial legislation will be used to seek to have Permanent TSB take ownership of the troubled Newbridge credit union.

The dramatic development comes as a new report by the Dail's Public Accounts Committee says that the State remains vulnerable to a repeat of the 2008 banking crisis.

The PAC has asked former Department of Finance chiefs David Doyle and Kevin Cardiff, former Financial Regulator Pat Neary and former Central Bank Governor John Hurley, to explain their actions during the 2008 bank crash, including on the night of the bank guarantee.


Last night it was understood the Exchequer will be forced to inject between €50m and €70m into Newbridge CU to boost its reserves before the State-rescued Permanent TSB executives can move in.

The application to effectively nationalise the credit union will raise fears of the start of a pattern of takeovers of troubled branches in the community-run sector.

Credit unions are controlled and run by their members and any profits go back into the community.

Moves for credit unions to be forcibly taken from their member owners and handed over to banks are set to be vehemently opposed by the entire movement.

Last night Senator Ronan Mullen said: "Last week I urged the Government to provide clarity on the state of credit unions. This request was ignored and as a result of the Government's failure to act, community credit unions are in disarray. The new proposal for a takeover by Permanent TSB is an attack on the community credit system."

A report to be published this month, meanwhile, states that the country remains vulnerable to a repeat of the 2008 banking crisis, and adds that the means to punish white-collar crime five years on remain seriously deficient.

A draft report of the Dail Public Accounts Committee also states that the State's bad bank, Nama, will have to raise €39bn to break even – a €7bn increase, on account of interest payments, from the previously stated €32bn.

Regulators will apply to the High Court early next week to use emergency financial legislation – put in place following the collapse of the banking sector – to seize control of the Newbridge lender from its member owners.

Bank resolution legislation allows the Central Bank to go to the courts to seize control of any financial firm it has concerns about.

The application is set to be opposed by Newbridge Credit Union members.

The Co Kildare lender has been controlled by a court-appointed special manager for almost two years now after concerns over its finances.

Central Bank executives had been planning to merge Newbridge with smaller neighbour Naas credit union. But the board of Naas rejected the link-up after considering it for months.

In a statement last night, the Central Bank confirmed that the board of Naas Credit Union had rejected the merger proposal. "However, the Central Bank remains committed to the protection of members' savings and is working towards finalising an immediate resolution to the financial difficulties at Newbridge Credit Union.

"A viable alternative option is being actively pursued which would protect members' savings and ensure continuity of lending and deposit facilities in the community," the Central Bank said.

If the High Court approves the takeover move, the institution will cease to be a credit union. The 37,000 members of Newbridge CU would instead become customers of Permanent TSB bank. But one source close to the situation said the terms and conditions attached to existing loans and savings would stay in place.

The PAC draft report states that the committee's work was "impeded" by the non-availability of persons and records central to the crisis.

It also discloses that the State has spent €123m on legal, financial and accountancy consultants since 2008 to deal with the crisis.

The committee will severely criticise the failure of banks to adequately address the personal debt and mortgage arrears crisis, and will call for tougher oversight by the Central Bank.

The PAC will also severely criticise the banks' continued failure to meet state-set lending targets.

The report also says that the State's ability to penalise and punish those guilty of causing the widespread collapse of the banking system remains weak, five years on.

It adds that taxpayers face having to put further "unknown" billions of euro into the bailed-out banks because of pending stress tests.

The report also concludes that the State's 'bad bank' Nama effectively is providing State aid to the banks totalling €5.6bn.

"The whole system of tackling white-collar crime has not operated well and there is no law on reckless trading."

Sunday Independent

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