# Another Credit Union gone to the wall...



## rob oyle (18 Dec 2014)

Per the Irish Times today, Kilorglin CU has been taken over by Tralee CU: http://www.irishtimes.com/business/...er-90-per-cent-loss-on-its-premises-1.2043059

If the reports on past behaviour in the article are an example of how this particular CU was run, I'm surprised it was given 4 years to work out its problems before this happened.


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## moneybox (19 Dec 2014)

It spend 5.4 million acquiring a new premise in 2009, hang on a moment wasn't the recession already in full swing at that stage, so where did it get the money to fund this and whose idea was it ?  then it gave out 3 million euro in bullet loans, some to staff and directors and it all culminated in a four year secret engagement process to try and sort the mess with regulators.  Truly shocking stuff


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## Raging Bull (19 Dec 2014)

The corker of it is that the board didn't realise the risks re the bullet loans...they would have had to since by the sound of it most of them had such loans.

The problem with credit unions is altough most positions are voluntary they are professional jobs and the depth of experience is not there in local communities.

The common thread about the 3 that failed is the distinct absence of corporate governance in its most basic form


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## 24601 (19 Dec 2014)

I'd be very interested to know how many CU's are involved in similar processes with the CB. Clearly the voluntary restructuring facilitated by ReBo hasn't achieved anywhere near the scale that may have been hoped for by the CB and probably Government. 

Unlike the banks who suffered an overnight obliteration of reputation in 2008 I'd say this drip-drip bad news cycle of basket-case Credit Unions being forced into resolutions by the regulator could slowly erode confidence in the Movement generally. It's truly shocking how amateurish some CUs were and still are, and unfortunately they make it a tough environment for all CUs, even the well-managed and prudent ones. 

Between this, Newbridge, Berehaven and Howth-Sutton there's an emerging trend of the CB bringing these drawn out negotiations with struggling CUs to a blunt end.


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## Gerry Canning (19 Dec 2014)

Tend to disagree with the notion that CU movement/lending in trouble.

We have circa 400 unions. Only a handful are in real trouble. Several have been forced to merge ,dozens will merge to become stronger.

How many of our (professional)(regulated) (well run?) covered by our guardians in Dept of Finance/Central Bank , have even survived?

Is it not surprising that most of these Amateurs will survive?


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## tvman (19 Dec 2014)

I'm a member of a Credit Union, fairly large operation by CU standards (c. 25K members) and generally seems fairly progressive in terms of technology - offering debit cards etc. But the wasting of money seems to be to be on a mind-blowing scale. It opened two new offices over the past decade or so, one at either end of its catchment area, along with one in the middle of its catchment area. A few years ago it bought a large premises elsewhere in the catchment area and applied for planning to demolish the building and build a new 3 story office. 

It pays a miniscule dividend.

I see a role for CU's in small scale, local relationship lending but they don't have the scale to absorb this kind of extravagant expenditure.


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## Sandals (19 Dec 2014)

tvman said:


> It pays a miniscule dividend.



None in a two small towns with two rebuild buildings, one with huge stone front n huge stone sign...,

Agm during week was fully of disgruntled members over rate of interest charged  for loans n also huge bads debts...solictor fees 20k so members cpncerned bad debts being just written off...and no interest...


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## dereko1969 (19 Dec 2014)

tvman said:


> I'm a member of a Credit Union, fairly large operation by CU standards (c. 25K members) and generally seems fairly progressive in terms of technology - offering debit cards etc. But the wasting of money seems to be to be on a mind-blowing scale. It opened two new offices over the past decade or so, one at either end of its catchment area, along with one in the middle of its catchment area. A few years ago it bought a large premises elsewhere in the catchment area and applied for planning to demolish the building and build a new 3 story office.
> 
> It pays a miniscule dividend.
> 
> I see a role for CU's in small scale, local relationship lending but they don't have the scale to absorb this kind of extravagant expenditure.


 
Presumably you've attended the AGMs and made your points known? What was the reaction of your fellow members?


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## Laramie (19 Dec 2014)

The amount of bad debts being written off by my credit union is huge. The provision for these debts is increased every year. They have been spreading out these write offs over a number of years so as not to make it look so bad.


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## Brendan Burgess (19 Dec 2014)

Laramie said:


> The amount of bad debts being written off by my credit union is huge. The provision for these debts is increased every year. .



Hi Laramie

There is a big difference between "writing off" of debts and making provisions. 

The Central Bank's rules result in massive overprovisioning for bad debts by credit unions.  The provisions should be far higher than the amount actually written off. 

We will see the same thing with mortgage provisions in the banks. They have massively overprovided and will start writing them back to profits over the coming years as arrears fall and property values rise. 


> They have been spreading out these write offs over a number of years so as not to make it look so bad



I understand that they have very little leeway in this matter. The provisions are made according to strict Central Bank rules. There isn't that much judgement exercised by the CU itself. 

Brendan


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## tvman (19 Dec 2014)

In reply to Derek1969

I have a very small amount in a deposit a/c so I couldn't be bothered. One problem with having many small owners(members/shareholders) is that its rarely worth any one members while in monitoring the behaviour of managers, because they have to expend the time and effort but the gains accrue to them only in proportion to their % ownership - there's a vast economic literature on this free rider problem in corporate ownership - basically it shows that many small shareholders = powerful managers, free to pursue their own interests at the expense of shareholders.


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## Gerry Canning (19 Dec 2014)

tvman said:


> In reply to Derek1969
> 
> I have a very small amount in a deposit a/c so I couldn't be bothered. One problem with having many small owners(members/shareholders) is that its rarely worth any one members while in monitoring the behaviour of managers, because they have to expend the time and effort but the gains accrue to them only in proportion to their % ownership - there's a vast economic literature on this free rider problem in corporate ownership - basically it shows that many small shareholders = powerful managers, free to pursue their own interests at the expense of shareholders.


 ...............

It is a credit Union , not a Bank
..In general C U Management did not pursue their own interests.

In general Bank Management did pursue their own interests.


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## 24601 (19 Dec 2014)

Gerry Canning said:


> Tend to disagree with the notion that CU movement/lending in trouble.
> 
> We have circa 400 unions. Only a handful are in real trouble. Several have been forced to merge ,dozens will merge to become stronger.
> 
> ...



I'd say it's more than a 'handful', but nonetheless the Movement has sustained itself and proven relatively resilient over the past number of years, all things considered. 

But this resilience can only be measured in terms of pure survival, and that survival comes at a cost to CU members in that a significant proportion of CUs are doing their members a huge disservice by destroying value for their savings. Unless there's wide scale restructuring the current model is destined to continue to damage members' interests rather than serve them.

A lot of small-medium sized credit unions have aging common bonds, paltry loans to assets ratios and persisting operating losses - that can't continue especially with investment income set to fall across the board in the coming months and years. If ReBo doesn't work out I can definte see a more aggressive policy being effected by the Central Bank, where the use of enforcement powers become the norm rather than the exception.


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## tvman (19 Dec 2014)

Gerry Canning said:


> ...............
> 
> It is a credit Union , not a Bank
> ..In general C U Management did not pursue their own interests.



In my view the building spree that some credit unions embarked on served the interests of management rather than members (who foot the bill).


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## dereko1969 (19 Dec 2014)

tvman said:


> In my view the building spree that some credit unions embarked on served the interests of management rather than members (who foot the bill).


 
I'd agree with this, but the membership did go along with it, whether actively or by not shouting stop, they did acquiesce.


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## tvman (19 Dec 2014)

dereko1969 said:


> I'd agree with this, but the membership did go along with it, whether actively or by not shouting stop, they did acquiesce.



Yea - I wouldn't disagree with that


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## WizardDr (20 Dec 2014)

You know one thing that really irritates me is that apart from the Post Office Savings Bank - there is not one Irish bank that survived the crises. Several years on we have a small number of Credit unions and some of the commentary in here is simply based on hearsay.

What is shocking is that the scale of regulation imposed on Credit Unions and restrictions on their business is out of all proportion and based on part evidence, prejudice and arrogance.

For example Section 76D of the 1997 Act - inserted by the 2012 Act - has an obligation on Compliance Officers that ... "The compliance officer of a credit union
shall be responsible for managing compliance at all levels in the credit union including—(a) ensuring that the credit union complies with all statutory and regulatory
requirements ...."

It is simply impossible to achieve this. In fact, when a similar provision was put into COMPANIES (AUDITING AND ACCOUNTING) ACT 2003 - it never got commenced. Why was this? Because it became obvious that those that inserted it in fact knew nothing about Company Law - that it was so onerous it could not be complied with - because all the obligations were so wide and in so many areas ..that it would be an impossibility. 

Here now we have the same type of provision. It is simply stupid. Its just the best one to illustrate the point.

What should happen is a change in the Share structure. At the moment all shares are treated by the Central Bank as 'deposits' on the basis that we are all fools and cannot help or do anything ourselves. Risk based shares - carrying the normal risks and rewards of ownership - should be established as proper share capital.

The Central Bank are imposing regulations more appropriate for banks on what are effectively the size of a modest branch. 

The Central Bank may well have concerns but the famous one that they believed - has not come to pass - despite the aggressive tackling of alleged under provisioning and smashing the perceived culture of top up loans and all that - and they are still standing despite the floggings - sounds like to me that one of the legacies of the Elderfield era was deal with weak opponents decisively whilst we saw little aggression in the arrears cases - and the Banks spotted that.


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## wysiwyg (21 Dec 2014)

In answer to Rob Oyle
_

If the reports on past behaviour in the article are an example of how this particular CU was run, I'm surprised it was given 4 years to work out its problems before this happened.
_
Unless a CU can put forward a realistic and sustainable proposal to bring their Reserves to the minimum 10% it makes no sense whatsoever to prolong the inevitable. Such CU's should better serve their members by finding an alternative home for their members savings and loans. You could blame the Central Bank for their apparent lack of action/care, but maybe that is the way they want it done, for their own reasons, which probably only make sense to themselves.. Better to ask why board members and board oversight committees and key members of these CU's have dragged their heels for 4 years, and seemingly more to come if there are CU's still at 5% Reserves!


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## Gerry Canning (22 Dec 2014)

WizardDr.

I think your post should be read by those who spout about Credit Unions.

On your comment I see the (dead) hand of a known failed Central Bank trying to impose belated (banking) type rules on a local institution.

Your comment to move Cu money to shareholders , I like it .

Have a good Xmas.


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## darag (23 Dec 2014)

Dr Wizzard, your post is quite long so excuse me if my summary misrepresents you.  

Your first main point seems to be that it is unreasonable to demand that an officer of each CU be designated to ensure compliance with regulation?  I don't understand this position unless you also object to any regulation of the movement at all?  Otherwise it seems you don't mind regulation but object to having anyone responsible for complying with it. 

Secondly you seem to advocate that CU shares be treated as risk capital? You can't be seriously suggesting that grannies' savings be first on the line to be wiped out as a result of poor CU management?

It sounds to me that an investment in a venture capital/vulture fund would suit you better than putting your money into CU savings.  I do not believe that the majority of members share your appetite for risk or desire for lack of regulation.


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## WizardDr (23 Dec 2014)

5% reserves being retained profits is HIGHER than the Banks Basel III at 3% putting it as 'capital' as % of total assets.
The 10% was made up and based on nothing.

The shares should be deemed deposits and those wishing to own the Credit Union should take shares.
Thats for Darag who may not have understood what was meant.


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## darag (24 Dec 2014)

Wizard, so do you accept that the requirement that an officer have responsibility for compliance is reasonable?  You seemed pretty adamant earlier that this was an oppressive requirement for organisations handling millions or tens of millions of the publics savings.

Thanks for the clarification.  So your big idea is that CUs be allowed issue shares separately to savings and presumably pay the shareholders profits?  This would be a complete departure from the current structure/ethos - I don't think it would be appropriate to call such an institution a credit union.  And I fail to see how this would have saved the high profile CU collapses we've seen. 

Regarding your objections to the reserve requirements, what level do you think would be appropriate? And would this level have saved this or other failed CUs? 10% does not seem onerous to me.  Some counties are insisting on higher ratios than this for large retail banks.


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## WizardDr (27 Dec 2014)

Darag - reasonableness is fine. What the Act says is completely different and I showed the quote. The Act does not mention the word reasonable in that section at all - it states "...(a) ensuring that the credit union complies with all statutory and regulatory requirements ...." In simple terms this is way outside just the Credit Union Act. What I saying is only people that do not understand the law could put this type of Section in and only those that also dont understand the law would also see it as reasonable.

The 10% RR was made up. Name another institution in the world with a 10% RR.

As for the Shareholding - let the ownership be with those that are prepared to take part in running it.

The Central Bank simply does want the Credit Unions in the stable. It must kill them the small number that have apparently failed. Is it five or six?


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