Officials from my Department were in regular contact with the Central Bank regarding the transfer of assets and liabilities of Newbridge Credit Union to permanent tsb, and I was kept informed of events throughout the process. My role, as Minister for Finance, in this process was as consultee and as such, I was made aware of events as they occurred. The special manager was appointed by the High Court and each extension of his term required High Court approval. The Central Bank’s Resolution Report sets out the level of bad practice at Newbridge credit union in the past. The Central Bank was required to meet rigorous High Court approved intervention conditions when undertaking this resolution process. It must be remembered that the cause of the problems rests with those running Newbridge Credit Union. The bad practice in Newbridge over many years can be illustrated in the following key lending statistics:
- An individual loan of €3.2 million, which was in excess of the Credit Union Act restriction of a max of 1.5% of the total assets.
- 52% of the loans exceed five years duration, as opposed to the maximum set out in the Credit Union Act of 20%.
- The average loan in Newbridge Credit Union was €17,281 as compared to the average Credit Union loan which is €7,764.
- There were 26 loans of an average value of €550,000, which were seriously distressed.
These statistics demonstrate that Newbridge was very different from a normal Credit Union. The structure of many of these loans was more akin to Development loans with “bullet” repayments as opposed to regular repayments.
Based on Central Bank advice I am satisfied that the decision to take this course of action was the only viable option available apart from liquidation. The Central Bank advised me that, having regard to the purposes of the Central Bank and Credit Institutions (Resolution) Act 2011 and the matters set out in section 9(6) of that Act, the immediate winding up of Newbridge Credit Union was not in the public interest. The reason for this being the particular purpose of maintaining public confidence in the financial system in the State, including the protection of members’ savings in credit unions.
My priority in assessing the Central Bank’s proposal on Newbridge was to protect the savings of depositors and members of Newbridge Credit Union. Arising from the transfer members of Newbridge Credit Union will continue to have full and uninterrupted access to their savings.
In line with the resolution options available to it the Central Bank undertook a process which involved the examination of possible credit union combinations. This examination resulted in an approach being made to a number of credit unions. Ultimately, however, no credit union considered that it was in its best interests to complete such a combination, even in the context of extensive financial support. This reflected the exceptional nature of financial difficulties in Newbridge Credit Union and the relative scale of the credit union within the sector. The Central Bank also considered proposed solutions put forward by various interested parties but none proved feasible in addressing the problems or protecting members’ savings.
It was as an alternative to a possible liquidation that the Department of Finance, with the support of the Central Bank, requested Permanent TSB to undertake this transaction. The transfer of Newbridge Credit Union to Permanent TSB means that Newbridge Credit Union members can be assured that they can continue to operate their loan and deposit accounts as normal.
As Minister for Finance, I agreed to the payment from the resolution fund to Permanent TSB of a financial incentive of up to €53.9m to support the transfer. This was on foot of a request from the Governor of the Central Bank. The incentive includes the following:
- €23m in cash up-front
- €4.25m for restructuring and integration costs
- €2m for other transferring liabilities, and
- a maximum additional €24.7m to cover a risk share on the transferring loans whereby the State will absorb 50% of the losses where loans perform below their transfer value and 50% of the gains where they perform above the transfer value.
The financial incentive provided in the Newbridge case is fully recoupable from the financial services sector over time in the form of a levy.
Royal Sun Alliance
With regard to the recent developments at Royal Sun Alliance Insurance Ireland, officials from my Department held a conference call with the Central Bank on Monday 11 November to discuss the position. Following that call, the Central Bank provided background information to the Department on the sequence of recent events and the injection by RSA Group of €100m in capital to bolster its reserves, taking its solvency capital requirement to 228%. In addition, the Central Bank provided an overview of its on-going contacts, meetings and inspections with RSA which the Central Bank conducts in its role as supervisor of insurance undertakings.
The Central Bank of Ireland has had an on-going programme of engagement with RSA Insurance Ireland (RSAII) since the implementation of the Central Bank’s Probability Risk and Impact System – PRISM, as it does with all high impact companies. As part of the framework the Central Bank of Ireland engages with firms at a level that corresponds to their impact category; the higher the impact, the higher the level of engagement. Engagement involves reviews, inspections and meetings, and the frequency and level of engagement is associated with the firms’ impact
rating.
I am satisfied that this improved regulatory framework provides for enhanced supervision of the industry and protection of the Irish consumer. With regard to RSA this programme included eight on-site inspections over a two year period and on-going meetings with key role holders such as the Chief Executive Officer, Chief Finance Officer, Chief Risk Officer, etc.
