National Bank Scandal • December 21 2003

Death in Parliament – the Mintoff law which killed the NBM

Back in the forties and fifties, as an upcoming politician armed with debilitating charisma and fine oratory skills, the Rhodes scholar from Bormla often encountered Anthony Cassar Torregiani, the founder of the National Bank of Malta, in Kingsway (now Republic Street, Valletta).
"One day I will take your bank, Sur Cassar Torregiani," the young Mintoff would say.
On the night of Monday, 10 December 1973, Prime Minister Dom Mintoff announced that the National Bank of Malta (NBM) management had offered government to take over the bank. Nothing could have been further away from the truth. Mintoff’s socialism had turned into the menacing streak of state capitalism with an iron fist.
Earlier on during that fateful day, throughout a heated meeting with NBM president Louis Vella and other directors, Mintoff had laid down the line, saying he wanted the bank by 5.30pm, and that he wanted all shareholders to transfer their shares to the government "naturally without compensation."
That same evening in Parliament, Mintoff claimed that 50 per cent of shareholders had already signed away their shares to the government. After having threatened the NBM directors that he would have the country’s parastatal companies withdraw their monies from the NBM deposit accounts, he told the directors that the shareholders would have to transfer their shares to the government without compensation.
A feverish telephone campaign to inform shareholders of Mintoff’s demands created general alarm as shareholders feared Mintoff would pass a law to remove their limited liability and make them personally responsible for any deficit in the bank. But the National Bank of Malta had strong financial foundations, as the accounts of its final year would prove. The directors and shareholders would realise only later how the Mintoff administration managed to create an implausible and risible economic exercise to render the NBM ‘bankrupt.’
Mintoff’s plan of forced ‘nationalisation,’ the kind which required coercion and threats, was rumbling in action. On 10 December, 1973, he sent the directors of the NBM packing, warning them to have the shareholders ready to hand over their shares. That same night he told Parliament that the directors had offered the National Bank of Malta to Government for free.
Within two days, Mintoff’s oratory managed to woo the Nationalists into approving an urgent bill to take over the NBM, with the dubious claim that he had already acquired fifty per cent of the NBM shares.
But by law, Mintoff had to have two-thirds of the shares: concurrent to his rush efforts to have Parliament approve the bill to take over the NBM, the Courts were rushing to take over the substantial shareholding of Count Alfred Sant Fournier and of the Marquis John Scicluna. These shares were administered by Adrian Busietta and Philip Attard Montalto for Sant Fournier, and Baron Patrick Scicluna and Alfred Delia for the heirs of the Marquis.
10 December 1973… (Human Rights Day)
Tension, threats and general panic: on Monday, 10 December at the OPM, Mintoff was busy at work coercing the NBM management – bank president Louis Vella and general manager Henry Micallef – to accede to his requests and hand over the National Bank of Malta to the government.
The unexplained run on the bank, now faced with heavy withdrawals amounting to Lm1.2 million within just four days, put the NBM directors in a quandary. They are faced with Mintoff’s wrath – he wants the bank by 6pm that same day. They consider declaring bankruptcy and proceeding with liquidation, a process that would freeze depositor accounts for an indefinite period of time.
In no dissimilar terms, Mintoff’s demands hark back to the BICAL crisis, when messenger Karmenu Mifsud Bonnici laid down his master’s line for Cecil Pace – give half your bank’s assets to Mintoff’s nominees, or face liquidation. The testing ground for BICAL had revealed fruitful for Mintoff’s ‘nationalisation’ furore.
In conference with the NBM management that day, the Labour premier declared his intentions to seize the bank. He refused to have the Central Bank offer bridging finance after the NBM asked for ‘stand-by’ finance against a collateral of Lm22 million in loans, covered by hypothecs and insurance; he refused to have the bank obtain Lm3 million in finance from Midland Bank and National Westminster Bank.
That evening the NBM delegation also spoke to Attorney General Edgar Mizzi, to ask him to be able to consult with foreign banks, such as Barclays Bank, which had already offered the bank bridging finance. Mizzi told the NBM management, according to Philip Attard Montalto’s Court evidence, "Dak digà belaghha l-pillola." (He has already swallowed the pill) – an indication of Mintoff’s future takeover of Barclays Bank (later to become Mid-Med Bank).
Mintoff said he would instruct all parastatal companies to withdraw their monies from the NBM, and have a long queue of their vans parade through Republic Street with some Lm4 million in parastatal holdings. He told bank president Louis Vella that if he (Mintoff) withdrew his money from the bank, everybody would follow suit, and that the bank would have to close down. "Jekk nigbed flusi jien, intkhom issubu ruhkom maghluqa fi zmien saghtejn" (If I withdraw my money, you will find yourselves closed within two hours).
The most notorious of threats was that he would abrogate shareholders’ limited liability so that the bank’s liabilities would have to be paid off from the personal wealth of the shareholders, "sa l-ahhar bicca kandelabru jigi konfiskat" (right down to the last piece of candlestick will be confiscated).
A second NBM delegation met Mintoff at 5.30pm, composed of vice-president Philip Attard Montalto vice-president Austin Cassar Torregiani, Baron Patrick Scicluna, Henry Micallef and legal adviser Prof Felice Cremona. But there was no solution in sight. Mintoff had drafted a legal instrument to have all shares transferred to the government, and declared his absolutist intentions:
"I’ll either pass a law to appoint a Council of Administration to take care of the banking group’s assets and liabilities, or else I will pass a law to remove the limited liability of all the shareholders." (… jew nghaddi ligi biex inqabbad Council of Administration biex jiehu hsieb l-assets and liabilities tal-banking group, inkella nghaddi ligi biex inehhi l-limited liability tax-shareholders kollha.)
"I know this is against the Constitution, I don’t give a damn about the Constitution, was it not I that wrote it, I don’t give a damn about the judges and anybody." (Naf li din hija kontra l-Kostituzzjoni, jiena nitnejjek mill-Kostituzzjoni, mhux jien ghamiltha, nitnejjek mill-Imhallfin u minn kullhadd.").
Parliament – Mintoff weaves his tale
On the evening of 10 December 1973, Mintoff announced in Parliament that the NBM management had suggested that the government take over the bank, "naturally without compensation," The Times reported the day after.
He said the board of directors had met in the evening to tell their shareholders "that in the circumstances and in the interest of depositors… they were prepared to divest themselves of their share capital and reserves to guarantee the bank and to hand over the bank to the government."
Mintoff claimed that 50 per cent of NBM shareholders had signed their acceptance of the recommendation of their board and he was assured that within one or two days the required two thirds of the shareholders would give their consent.
Mintoff’s oratory spun his tale of lies: he said that two weeks before, the government had drawn the attention of the NBM to rumours which could be harmful to the bank. He said that parastatal bodies had informed the government that they wished to withdraw their monies due to the rumours, but that he had told them not to panic "because if all depositors withdrew their money simultaneously any bank, no matter how strong, would be broken. He said he had told the NBM that they would advise parastatal companies not to withdraw their monies.
After having disallowed the NBM from borrowing bridging finance from Barclays Bank Malta, Mintoff would say the government was already negotiating with Barclays Bank to set up another commercial bank in which the government would have a 60 per cent majority shareholding with a capital of Lm3 million. "The new company would, when the National Bank of Malta shareholders agreed to transfer the bank to the government without compensation, take over the bank." Mintoff said Barclays Bank in London had also given their assent.
The announcement caused havoc: Mintoff’s statement urged more depositors to withdraw their money from the NBM. The next day, as withdrawals escalated to a new high, even higher than those of the week before, Mintoff appeared on television to tell depositors not to panic. He said that on the advice of the Central Bank, the NBM was to suspend its activities as from Wednesday, 12 December. "A cooling off period was required for depositors to calm down and for the government to see what can best be done in the interests of all concerned," Mintoff announced. Mintoff described the situation as having arisen from an unjustified run on the bank and urged depositors not to panic.
But his statement had already had its catastrophic effects. The morning after that Mintoff announced the NBM takeover, over Lm1.3 million in withdrawals were effected from the bank, a higher amount than the Lm1.2 million that had already been withdraw the week before when the bank was still under private administration. As claimed in an affidavit by former NBM director Adrian Busietta, "this hijack directed by Mr Mintoff produced a record withdrawal from a Maltese bank and will long be remembered as a banking debacle."
It seemed that Mintoff had planned his attack on the NBM well: when German bombers demolished the buildings of the Anglo-Maltese Bank and the Bank of Malta in 1941, Anthony Cassar Torregiani housed the two banks in his house for months until merging them into the National Bank of Malta in 1946. Mintoff had managed to destroy the spirit and heart of private banking within days.