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Central Bank takes over running of third-largest credit union in State

THE running of one of the largest credit unions in the country has been taken over by the Central Bank after fears it has not set aside enough money to cover losses from property-related loans.

Regulators last night insisted the savings of 37,000 members of Newbridge Credit Union were safe after it sent in accountants from Ernst & Young to take over the running of the lender.

In an unprecedented move, the Central Bank got a High Court order appointing a special manager to the Kildare credit union.

It was the first time the regulators used new legislation to take control at a credit union. Under the Central Bank and Credit Institutions (Resolution) Act 2011, the bank has extensive powers to take over financial institutions.

Concerns about the financial soundness of some 56 credit unions prompted fears last night that the Central Bank will soon swoop on more lenders.

The High Court was told Newbridge Credit Union does not hold sufficient reserves to withstand expected heavy losses from loan defaults.

And regulators are uncertain about the true financial position of the lender. Its members have savings of €163m, while it has loans of €190m. It is understood the credit union backed a number of commercial lending deals during the property bubble that have since gone sour.

This was despite repeated advice for credit unions to stay away from commercial lending. It is the third largest community-based credit union in the State.

Regulators have been demanding that more money be put aside to cover likely loan losses for a number of years now, it is understood.

Members of the credit union were assured last night by Finance Minister Michael Noonan that it would be business as usual after Luke Charleton from Ernst & Young was appointed to take over at the Kildare lender.

And they were assured that their savings were covered for amounts of up to €100,000 each under the state deposit protection scheme.

However, the need for intervention by credit union registrar James O'Brien has been questioned by the board of the credit union.

In correspondence with the bank read to the court, the board disputed there was a need to appoint a special manager and said it failed to see how there could be the alleged uncertainty about the credit union's financial position.

No issues had been raised by its auditors and it had a business plan, the board said.

The board also said it was dismayed at the Central Bank's proposal.

It said allegations of regulatory breaches were unreliable and also sought a meeting to discuss an alternative to the proposed special manager appointment.

Mr Charleton has been appointed with immediate effect. He will review and report to the Central Bank within one month.

Mr Charleton will also develop a plan to restore the credit union's financial position, considering all available options. However, any decisions on acquiring assets of the NCU, its winding up or on holding annual general meetings or extraordinary general meetings will be taken by the Central Bank.

Mr Charleton will be paid €423 an hour.

Irish Independent