Credit unions risk €200m bond loss

IRISH credit unions could face a combined loss of over €200 million on subordinated bonds held with Irish banks.

The claim was made yesterday by Seamus Coffey, an economics lecturer in UCC.

He told RTÉ’s This Week that individual credit unions holding up to €300m in subordinated bonds could face losses of at least €200m, if Finance Minister Michael Noonan imposes a 75% penalty or “haircut” on their bonds.

Kieron Brennan, chief executive, Irish League of Credit Unions (ILCU), said he was unaware of the amount of money held in Irish bank bonds by the movement, because that was done by individual unions.

“I can’t give you a ball park figure”, he told RTÉ.

The bonds are held by individual credit unions which they buy and sell on an ongoing basis so it is difficult to know “at any given time” the amount involved.

With the Central Bank currently stress testing the movement for future losses and demanding significant rationalisation, it has been speculated it may demand up to €1.5 billion be set aside to cater for future losses, which is about 25% on the existing €7bn loan book.

That combined provisioning, on top of the bailout of about 12 members of the ILCU which are currently financially stressed, could wipe out the SPS fighting fund over night.

Bill Hobbs, former chief executive of The Credit Union Development Association which represents a number of credit unions outside the ILCU, told RTÉ’s This Week he believed the losses within the movement are “much worse” than has been acknowledged.

Mr Hobbs said that amounts far bigger than €100,000 have ben lent to some property developers in their own areas by the movement and he expects the credit unions will be seen to be as bad as the banks, though on a smaller scale.