EIRCOM'S STAFF credit union has written to members telling them it cannot pay a dividend this year because of losses sustained on bonds sold to it by a stockbroking firm.
The E-services Communications Credit Union has also told its 13,000 members that it is suing Davy stockbrokers, which sold it the bonds, to recover the cash it invested in them. The High Court is to hear the case on February 3rd.
The credit union is one of 300 for which Davy invested money in perpetual bonds issued mainly by European banks. Unlike most such instruments, perpetual bonds have no set date on which their purchaser can cash in the investment. In April, the credit union told the courts that it had lost €5.2 million on the investment.
In a letter to members, the credit union's secretary, Michael J Reilly, says that the loss has hit earnings and means the investments have to be significantly revalued. "Due to this revaluation, there is no surplus available for distribution now. Therefore the credit union is not in a position to pay a dividend this year."
The E-services Communications Credit Union is suing Davy because it claims they were inappropriate investments, did not comply with regulations governing how credit unions should invest members' money and that the firm's advice was misleading.
Davy has paid the credit union €1 million in respect of one of the investments, the AXA Perpetual Bond, but has not admitted liability. The firm told The Irish Times yesterday that it believed it had no case to answer and intends defending the action.
About 90 per cent of the credit unions involved accepted a deal from Davy that the firm said would allow them to recoup their loses over a 10-year period.
The Eircom credit union rejected it and Mr Reilly's letter describes the settlement as a "considerable gamble". It is due to publish its annual report and accounts shortly. The secretary says the figures will show that its operations generated an "excellent income" this year. It also has a liability relating to a Friends First/ISTC investment.
The High Court recently overturned a ruling by the Financial Services Ombudsman that Davy failed to advise Enfield Credit Union properly in relation to the Perpetual Bonds.
