STOCKBROKING FIRM Davy has offered to cover losses incurred by credit unions on investment bonds bought from it before the collapse of the global markets.
Davy said yesterday it would spend €35 million on a new investment product aimed at covering the losses incurred to date.
The offer follows 10 weeks of intense negotiations between Davy and the Irish League of Credit Unions (ILCU), which had approached the stockbroker with a view to negotiating a settlement with its members.
About 149 credit unions bought €180 million worth of CMS bonds over the past four years. These bonds have declined in value by up to 40 per cent in the interim period, leaving a large number of credit unions nursing heavy losses on their investments.
Under the terms of the deal negotiated between Davy and the ILCU, €35 million will be placed in an "investment instrument" with a leading Irish financial institution with a view to earning enough money over a period of up to 10 years to cover the losses incurred to date by credit unions.
It is understood this investment product will be placed with one of AIB, Bank of Ireland or Irish Life Permanent.
In return, Davy will have the right to buy the bonds back at any time. If markets swing back, Davy could recover the €35 million.
It is understood Davy has made provision for this amount in its 2007 accounts, which were signed off by its board of directors last month.
The ILCU endorsed the offer at a two-day session last weekend.
"The board views it as a fair, commercial compromise," a spokesman for the credit union body told The Irish Times.
He said an explanatory memorandum would be sent to its members in the coming days outlining the terms of the offer.
Davy is expected to meet the various credit unions over the next six to eight weeks in the hope of getting a high level of acceptance for the proposed settlement.
It is understood that Davy hopes to achieve an acceptance level of 85-95 per cent. "Individual credit unions will make their own decision on this," the ILCU spokesman added.
The stockbroker is currently defending five legal actions from credit unions in relation to the CMS bonds.
This includes two High Court challenges to a decision by the Financial Services Ombudsman ordering Davy to buy back at face value €500,000 of bonds it sold to Enfield Credit Union and which have since plunged in value.
In a statement, Davy said the initiative "underpins its commitment" and "regard" for the credit union movement. "It also signals Davy's confidence that bond values will recover as the current international credit crisis recedes," it added.
Davy had argued credit unions understood the nature of the investments and said the bonds had fallen in value due to the decline in the financial markets.
