Friday, January 30, 2009

Credit Unions Vs Banks and the Credit Sub-prime Crisis


It was Freidrich Raiffeisen, the mayor of Flammersfeld, Germany who conceived of the idea for a credit union more than 150 years ago. Today about 150 million people are members of approximately 42,000 credit unions in around 90 countries worldwide.

So what is a Credit Union and how does it compare to a Bank?

A Credit union is essentially structured as co-operative which is owned and directed by its members. It is a federally chartered financial institution and is regulated federally.

Federal regulations and required laws establish the requirement for credit unions to issue common shares and hold them as equity in the credit union. A nominal issue price formalizes the relationship credit unions have with their customer-owners through their share accounts.

Ownership with Credit Union therefore includes a one time investment that stays on deposit in a 'common share account' (savings), and may be redeemed upon the withdrawal of membership from the credit union. This common share requirement is not a “fee” to join but is an investment. This investment is retained as equity in on behalf the customer who also becomes a part owner in the business of the credit union. With the ownership share(s), the owner-customer has access to all products and services and has a say in the matters of the credit union. The customer as a member now can attend Annual General Meetings, voice opinions and elect and vote for the Board of Directors which sets policies and objectives. Many credit unions reserve the right to expulsion of a member.

A relatively smaller deposit ($5 to $30) than a bank is required to open an account at a credit union

Because membership represents ownership, it fosters a stronger relationship with Credit Union than a regular bank. The credit unions thus call their customers 'customer-owner'.

Credit unions are supposed to be not-for-profit financial institutions and any money made above the cost of operations is to be shared with its members through dividends, service enhancements, granting loans on reduced interest rates.

Typically members with a common bond collaborate to make credit unions such as place of worship; an organization; place of employment; community based; trade union etc.

Only people who are credit union members can borrow at the credit union where they have membership. Unlike a bank where the borrower is assessed based on his or her 'ability' to repay the credit union principles are based on the 'character' of the member wherein the 'desire to repay' is considered more important than the ability to repay. In essence, members are borrowing their own money and that of their fellow members and member service is the foundation of the of the credit union movement.

In general credit unions have weathered the current sub-prime crisis better than the banks as bulk of their activity is carried out through deposits by their own members and holding their loans in-house. Since they are member-owned there is risk aversion where lending principles and standards are not compromised. As not-for-profit cooperatives they do not usually charge as much as banks and don't have to pay taxes on their net income. This perhaps gives them an added edge to provide better rates on credit cards, one-year CDs and one-year adjustable-rate mortgages to their members.

Credit unions essentially make no subprime loans but in these tough economic times it is more than likely that a credit union may be willing to look at those with poor credit. When banks are tightening their screws it is likely that a credit union may be in a better position to approve your loan expeditiously as their relatively smaller size makes them more nimble, personal and understanding.

In today's tough market condition consumers should try and include credit unions in their comparison shopping at financial institutions. Eligibility may become a hurdle but requirements have been relaxed tremendously in recent years and people now can become members of a credit union just based on where they work or reside. Don't go by the name or size of the credit Union. Find out what the eligibility requirements are for membership. Don't discount a credit union for its small size, as large credit unions very often will help smaller credit unions. As for the misconception that credit unions are local and as a member one gets tied-down to a financial institution locally, credit unions have gone well beyond that issue with shared branching and a network of cooperative ATMs.

In the US before you decide to become a member of a particular credit union check to make sure the credit union's deposits are insured. The NCUA is a federal agency that insures most credit unions by the National Credit Union Administration's share insurance fund. Their website: http://ncua.gov/
In Canada visit: http://www.cucentral.ca/

Wednesday, January 14, 2009

Nortel a tek-wrek : Restructuring & Bankruptcy Protection


Jan 14th 2009: Nortel Networks Inc. (“NNI”) and fourteen (14) of its subsidiaries filed petitions in the United States and Canadian Bankruptcy Courts seeking relief under



  • Chapter 11 of the United States Bankruptcy Code (Case No. 09-10138) and

  • Companies’ Creditors Arrangement Act (CCAA) in Canada.

Note: Nortel has filed for protection from its creditors and is not in receivership or bankruptcy. Instead, the filing under Chapter 11 and CCAA is an attempt to rescue and plan restructuring so that the debtor (Nortel) diminishes the possibility of going into receivership or bankruptcy. The legislation (CCAA and Chapter 11) aims at facilitating compromises and arrangements between companies and their creditors.

Link to get an overview of CCAA (CANADA): http://www.creditgurublog.com/?p=32

Link to get an overview of Chapter 11 (USA): http://en.wikipedia.org/wiki/Chapter_11


Nortel’s link on its financial and business restructuring: http://www.nortel.com/corporate/restructuring.html

CANADA
Pursuant to the CCAA Order granted by the Ontario Superior Court of Justice, Ernst & Young Inc. was appointed Monitor of the Applicants.
Contact for stakeholders as follows:
Email: Nortel.Monitor@ca.ey.com
Toll Free: 1-866-942-7177
Website: http://documentcentre.eycan.com/Pages/Overview.aspx?SID=89
Creditors may want to read the initial court order at the following link: http://documentcentre.eycan.com/eycm_library/Project%20Copperhead/English/Court%20Orders/Nortel-Initial_Order.pdf
Link to court documents and Monitor’s Report: http://documentcentre.eycan.com/Pages/Main.aspx?SID=89&Redirect=1

USA
For information on the U.S. Chapter 11 proceedings,
Contact established for stakeholders for the U.S. claims agent:
Epiq Bankruptcy Solutions, LLC
Attn: Nortel Address Updates,
757 Third Avenue, 3rd Floor,
New York, NY 10017,
Tel: 646-282-2500 Fax: 646-282-2521
Toll free at 1-866-897-6435
Website: http://chapter11.epiqsystems.com/nortel
Link to ‘Proof of Claim’ Form: http://chapter11.epiqsystems.com/Documents.aspx
Link to court documents: http://chapter11.epiqsystems.com/docket/docketlist.aspx