Top Story • December 07 2003

Mintoff’s termination of the NBM

Matthew Vella and
Julian Manduca reporting
On this day thirty years ago, a group of board directors charged with the management of the National Bank of Malta (NBM), a privately-owned commercial bank, were facing a calamity hurling directly from the Prime Minister’s office.
That December month in 1973 would prove to be yet another death knell to many private investors on the island whose business interests were about to be poached and seized by Dominic Mintoff, firebrand Labour party leader and then Prime Minister of Malta.
Like the BICAL crisis one year earlier the NBM shareholders faced yet more political intrigue and wanton destruction of private initiative from Dom Mintoff’s nationalisation plan.
In the same manner that BICAL owner-shareholders Cecil and Henry Pace were stripped off their business empire through the sheer power of Mintoff’s threats - according to Cecil Pace Mintoff wanted 50 per cent of the BICAL bank transferred to his nominees – so to were the NBM shareholders faced with a similar threat.

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In circumstances not unlike the rundown to the BICAL closure, the NBM had encountered an unexpected run on their cash deposits, with liquidity resources dwindling precariously after three days of the run. Mintoff’s solution was a simple one: give the bank over to the government.
But what had sparked yet again, another run on a private, commercial bank, just twelve months following the BICAL crisis? What form of panic had seized depositors to remove their savings from the NBM, the strongest financial institution on the island? Who had spread the rumours that the NBM, one of the prime lenders to the property development and tourism sector, was performing badly?
In similar, yet altogether mysterious circumstances as was the case with the BICAL crisis, it seemed that Maltese private banks were facing a threat from above, and Mintoff was to be seen at the heart of both banking crisis.’
The state of the National Bank of Malta in 1972
The National Bank of Malta, which incorporated the Sciclunas Bank, was part of a general conglomerate along with the Tagliaferro Bank. The Tagliaferro bank had become a member of the group in 1969. By 1972 the total asset worth of the NBM group was Lm45.5 million, of which Lm38 million represented the asset wealth of the National Bank of Malta and Sciclunas Bank.
Between 1968 and 1972, the NBM had encountered several vicissitudes, not least due to the international economic slowdown with the seventies’ oil crisis. Since 1968 however, pre-tax profits for the NBM had shown general signs of successful progress, increasing from Lm465,662 in 1968 to Lm722,686 in 1972.
A general feature of the NBM was its lending potential, being the main creditor of the property development and tourism sector. The bank itself had been asked by the Nationalist government before 1971 to be more ‘lenient’ in its lending policy with these operators. Between 1968 and 1970, to make more funds available for advances to clients, the NBM’s deposits with the Central Bank were reduced from Lm13.5 million to Lm630,000. Advances increased slowly between 1970 and 1972 from Lm26.9 million to Lm28.5 million, which according to NBM chairman Louis Vella, speaking at the 1972 AGM, was because it was more "prudent to adopt a policy of restraint on lending." The group was embarking on developing a finance company.
Since 1968, the NBM had also registered a 47 per cent increase in client deposits, climbing from Lm15 million to Lm23 million in 1972.
By the end of 1972, the NBM held over Lm39 million in client deposits and Lm3 million in deposits from other banks. Around Lm13 million was in the form of liquid and quasi-liquid assets, representing 34.7 per cent of the bank’s deposits. According to the 1970 Banking Act, it was mandatory for a bank to be in a position to offer banking facilities in excess of 25 per cent of its paid-up share capital and published reserves. This meant that the NBM commanded a substantial liquidity position, greater than the Central Bank’s requested liquidity ratio.
Run on the National Bank of Malta
On Thursday 6 December, 1973, certain NBM branches reported heavy withdrawals amounting to hundreds of thousands of liri. The management of the NBM – General Manager Henry Micallef and assistant manager Antoine Tagliaferro – were called in for a meeting with Central Bank assistant governor Lino Spiteri (Minister of Finance 1996-1997) to assess the situation. Micallef said the bank had enough liquidity to meet a heavy demand.
The next day, as the withdrawals continued, the NBM directors – Chairman Louis Vella, board secretary Dr Robert Staines, Micallef and Tagliaferro – were called in for a meeting with Prime Minister Dom Mintoff.
On Monday 10 December, Lm900,000 was withdrawn. A board meeting of the NBM was called, and it was assured that the Bank still had 30 per cent liquid assets out of its total deposits. The minimum required by law was 25 per cent.
At 3.00pm that day, Louis Vella, Micallef, Tagliaferro, Major Austin Cassar Torreggiani and Baron Patrick Scicluna were called in to a meeting with Dom Mintoff, who was flanked by Finance Minister Guze Abela, Central Bank governor RJA Earland, Lino Spiteri and Attorney General Edgar Mizzi.
Dom Mintoff had laid down his cards – he wanted the bank by 5.30pm. He demanded that the shares be transferred to government, threatening he would close the bank and declare a ‘Bank Holiday.’ Mintoff claimed the solution to stop the run on the bank would be to have the government take the bank in its hands to restore depositors’ confidence.
But Mintoff also refused to let the NBM have another lease of life – borrowing bridging finance from other banks such as the Midland Bank, the NatWest, or Barclay’s Bank. What is evidently clear is that the Central Bank did not offer any finance to allay fears of bankruptcy: according to the Curmi and Scicluna Stockbrokers report, the NBM applied for help from the Central Bank to meet the cash needed through a temporary advance facility, offering the Bank’s property and part of its loan portfolio (with the best Maltese companies) as collateral.
But why didn’t The Central Bank grant the necessary cash needed to meet the liquidity demanded, to enable the survival of the NBM through the run? After all, the bank had already gone through minor runs beforehand, even during the BICAL crisis.
‘Naturally without
compensation’
According to court testimonies in the NBM proceedings that commenced years after the takeover, when Major Austin Cassar Torreggiani, one of the NBM directors, asked for the price at which the shares were to be transferred to government, Mintoff replied "naturally without compensation," ordering Dr Edgar Mizzi to draft an Instrument for the transfer of shares which read as follows:
"We the undersigned, hereby authorise the Board of Directors of the National Bank of Malta Ltd to transfer to the Government of Malta all the assets of the Bank in consideration of the assumption by the Government of Malta of all the Bank's liabilities and undertake to do all that may be necessary in order that such transfer be effected."
Mintoff said that if the directors refused the ‘offer,’ he would remove the limited liability of the banks’ shareholders, extending it beyond the bank’s share capital to their personal assets, and that he would withdraw the four million pounds in parastatal funds which were deposited at the bank.
According to Court evidence given by Philip Attard Montalto, Mintoff said all Malta would know the bank had gone bankrupt when he would take the vans of the parastatal companies to Strade Reale to sound the alarms, and that he would go on television to say “Jien se ndabbar rasi; tieghi se nehodhom” (I’m getting out of here; I’m taking my cash).
According to Philip Attard Montalto’s evidence in Court, when the directors returned later that day to meet Attorney General Edgar Mizzi, telling him of their intention to ask for bridging finance from Barclay’s bank, Mizzi refused saying that Louis Galea, the director of Barclay’s Bank Malta, which would be later nationalised to become Mid-Med Bank, had “already swallowed the pill” (“Dak diga’ bellghaha l-pillola”).
Mintoff’s threats prompted a telephone campaign to all the NBM shareholders to collect their signatures for the share transfers, fearing the government would take their personal belongings from their homes. Court marshals started knocking at the doors of the shareholders, right up to the early hours of the morning.
Since all sources of support from the government had been blocked, the directors had to either face bankruptcy or get the shares transferred to the government. They feared that if they decided to initiate liquidation proceedings, hundreds of thousands of depositors’ funds would remain frozen for a long period of time, as well ending the employment of the 300 bank workers.