Michael McGrath (Cork South Central, Fianna Fail)
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To ask the Minister for Finance the action he will take to address the losses incurred by credit unions and other fixed deposit holders arising directly from the liquidation of Irish Bank Resolution Corporation; and if he will make a statement on the matter. [14405/13]

Michael Noonan (Limerick City, Fine Gael)
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I have been informed there are a number of deposit accounts not entitled to full compensation under the deposit guarantee scheme, DGS, or the eligible liabilities guarantee, ELG, scheme or both due to the nature of the products or deposit options in which those account holders invested. These include investments by credit unions and other fixed deposit holders. The proceeds from the disposal of IBRC’s assets will be used to repay creditors in accordance with normal Companies Acts priorities and consequently, preferred creditors will be paid first and then the debt which NAMA will have purchased from the Central Bank will be paid. If there are proceeds available after repayment in full of the NAMA debt, these proceeds will be applied to remaining unsecured creditors. This would include credit unions to the extent that their deposits are unguaranteed.

I am advised by the Central Bank of Ireland that certain tracker bonds sold to credit unions, which were liabilities of IBRC at the time of the liquidation, have a structured deposit element which is covered by the DGS for that element of the product. As a result, the first €100,000 of any claim from these depositors is covered under the DGS. The bond itself is not covered by the ELG scheme as it predates that scheme. Credit unions affected have been advised to deal with the special liquidator regarding this matter. Any issues regarding losses incurred by other fixed deposit holders are also a matter for the special liquidator.

In respect of credit unions, the Government already has provided €500 million of taxpayers’ money to support the stability of credit unions through resolution and restructuring. In addition, the credit union movement has its own stabilisation fund.

Michael McGrath (Cork South Central, Fianna Fail)
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I thank the Minister for the reply. This issue is one of the unforeseen consequences of the liquidation of IBRC or at least it was unforeseen on this side of the House, because Members were not aware of it in advance. While this is not a disaster for the credit union sector as a whole, it is a significant issue for the credit unions affected. The Minister has confirmed the involvement of up to 16 credit unions with investments totalling approximately €15 million. Under the deposit guarantee scheme, such credit unions will get back up to €100,000 each and consequently, the credit union sector faces net losses of €13 million to €14 million as a result of the liquidation. They consider themselves very hard done by and they have a legitimate case. Essentially, these were deposits in a State-owned bank and the liquidation of that bank and the losses thereby imposed resulted from a policy intervention by the Government. As the Minister is aware, virtually all other deposits in IBRC were transferred to AIB prior to the liquidation of the bank. I should point out that many individuals also invested in this product. Two cases have been brought to my attention. The first concerned a widow who deposited €200,000, of which she will now lose €100,000. The second was a 69-year-old pensioner who placed his entire savings of €450,000 in the product, of which he will now lose €350,000. This is extremely harsh and my purpose in tabling this question was to achieve finality on this issue. Is the Minister stating it is not possible to intervene or that he will not intervene or that essentially, those concerned will get €100,000, after which they will join the queue of unsecured creditors? I am attempting to get to the end point in this regard.

Michael Noonan (Limerick City, Fine Gael)
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First, the Deputy may be interested in the type of investment product into which they had put their money. It was called the Anglo Irish Bank Credit Union Bond 2005 and my understanding of this bond is that it was an equity-linked bond, marketed exclusively to credit unions by Anglo Irish Bank private bankers in 2005. This bond was never covered by the eligible liabilities guarantee. It was linked to the performance of the Euro Stoxx 50 index and as outlined in the prospectus, in the event of Anglo defaulting, the investors' capital will not be guaranteed. The bond offered annual liquidity, that is, it could be cashed in once a year over its eight-year term. I do not understand, when the State moved out virtually all deposits, the reason credit unions stayed in, when the prospectus has stated that in the event of Anglo defaulting, the investors' capital would not be guaranteed, when they were not locked in and when they had the option of getting out each year on an annual basis.

That said, to answer the Deputy's questions, in the first instance, €100,000 is safe. Second, they will join their place in the queue with other creditors to share any residue. In addition, however, if the hit on an individual credit union is such that it comes below the required reserves, it should take up the matter with the Credit Union Restructuring Board, ReBo, because the credit union movement has its own internal fund and the State also has provided €500 million in a fund to help the capital requirements of impaired credit unions.

That is the series of issues.

Michael McGrath (Cork South Central, Fianna Fail)
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It is reasonable to ask why they did not transfer it out. The answer probably is that it was Government policy that there would be a gradual wind down of IBRC up to 2020. This particular tracker bond, as the Minister calls it, was due to mature over the next number of months so they had a reasonable expectation that it would be allowed to mature in full and they would realise the full value of the investment. It has a structured deposit element, as the Minister's reply indicated. Is there any way to separate the deposit element from the equity linked aspect of the investment product and at least secure the deposit element of it for the investors?

Michael Noonan (Limerick City, Fine Gael)
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Some of them have €1 million in.