Heads up, Meridian bond issue. | Page 2 | Meridian Credit Union | Discussion forum

Loonie said
I may have the terminology wrong. Perhaps it's not called a bond, but something like a bond. Yes, I don't imagine there would any secondary market And, yes, I would expect it to be fully taxable in a non-registered account.
Perhaps only available to members?  

If it's an "investment" or "preference" share issue, then yes it'd probably be offered to members. I'm not sure the tax treatment of credit union share dividends. I think it's treated as "interest income," as my Hubert Financial/Sunova Credit Union share dividend were included in the "interest income" box of my T5 along with my savings account interest paid for the year but that was Manitoba so I'm not sure about Ontario. Their credit union distributions may be either eligible or ineligible dividends in terms of the dividend tax credit.

Cheers,
Doug

Loonie said
The offer is out now. It's "shares", very similar to what Bill has described from Libro. Minimum of $5000 investment, can be registered or not. Supposed to give a minimum of 4.25% IF dividends are given. I don't quite follow that. Why would you have a high minimum if you aren't even sure if you're going to give any?
Not covered by deposit insurance.
https://www.meridiancu.ca/personal-banking/ClassA/default.aspx

What do y'all think? Would you invest in these?
To me, it sounds more or less like the CU amalgam of what banks issue as stocks and bonds, given that they couldn't or wouldn't use the market to raise capital, but with a few more restrictions - may be harder to cash, n only redeemable within the CU, etc. Functions sort of like a bond, with the five year minimum and interest, but sort of like shares with dividends but no capital gains, only the risk of losses.
Is that right?

Bank stocks offer dividends at least as high, some higher, which can be taxed as such, but perhaps more downside risk in terms of market value, over five years?

I am not sure where would be best to put these, if bought.
If in cash, you will pay full tax.
If in TFSA, your money is tied up and you might not get any income from it or might even lose capital. Might be forced to take your dividends in shares rather than cash.
If in RSP, that might be best, but if you are of the age where you have to move to RIF, wouldn't that create a problem because of the mandatory withdrawal rate which is often higher than 4.25%? Would they then be forced to redeem some of your shares earlier than intended? Or would this need to be part of a larger self-directed plan, so that you took the mandatory withdrawals from elsewhere?

Opinions?  

You would not lose capital unless the credit union went under/bankrupt as credit union shares are paid out/redeemed, upon approval of the Board of Directors, at their "par value" (i.e., what you paid for them), since they don't trade on the secondary market. 🙂

So, in this case, unlike bank stocks, there's no "downside risk" as they can't be sold/traded on the secondary market. Conversely, you are correct in that there's "upside" or "capital gains" and that the dividends aren't guaranteed. However...they'd risk a "run" on redemptions and have to pay out a bunch of their investment share "capital" if they consistently didn't declare any dividends. So, that risk is somewhat limited. While not an investment recommendation, if it's treated as "interest income," might be a decent TFSA investment. 😉

Cheers,
Doug

Loonie said
This one wasn't actually a market-linked fund. The rate of 5% was guaranteed (more than you'd get theses days on any market-linked) and there was no cap on profit. But there was real market exposure and risk, unlike market-linked.
I agree, there are similarities. When he got to the part about how the MER is "hidden" (as if to say it wasn't real), then I knew for sure I was "out". I find it depressing that CUs promote this way. Most, if not all, of their employees come to them from bank backgrounds and perhaps it has become second nature for them to talk this way. But we are not fooled. If you watch TV at all, there are some great ads on now from (I think) Questrade (or similar) where the client asks about fees and says how much it will cost her over her lifetime. Great ad!

I'm actually starting to think that market-linked funds may soon make sense if interest rates continue their downward spiral! Not much left to lose.  

That's because credit unions can sell insurance and segregated funds and annuities. 🙁

In the above example, I would've gotten out of their fast and ran. What was the underlying holdings of the fund? The Meridian investment shares, however, are intriguing. Do you have to hold Meridian membership shares to buy?

Cheers,
Doug