BOV says internal investigation showed no wrongdoing in Deiulemar case

An internal investigation by BOV into the trust services offered in connection with the Deiulemar shipping giant of Italy showed no wrongdoings from any of the bank's employees, according to a company spokesperson.

"It's important to note that we have a strong case," the spokesperson said during a press conference on the bank's financial performance. "The investigation didn't show that the bank was at fault in any way. However, we took a decision to leave the trust business - it's outside our risk appetite."

BOV reached a €182 million settlement over the Deiulemar bankruptcy case in Italy this week, having initially been on the hook for €370 million. In 2009 the bank had taken over a trust that held €363 million in assets of the Deiulemar company. When the company filed for bankruptcy in 2013, bondholders turned to BOV to recoup their lost savings. 

This week the bank reached a settlement without any admission of fault, bringing all legal claims surrounding the issue to an end.

"This can see us looking forward to driving this bank in a manner that could leave better results for the institution and shareholding," BOV chairman Gordon Cordina said at the press conference. 

Cordina admitted that the €182 million loss is significant. "There's a specific litigation provision held of €81 million. So this will leave a hit of over €101.2 million on our profit and loss," he explained. 

"The impact on capital is estimated at 220 basis points, meaning that the bank will be left with sufficient capital buffers. We will be well above our regulatory requirements with respect to capital ratios. [...] It also means that excess capital may be used for further investment or released in a sustainable manner to shareholders, subject to the guidance and communication with our regulators."

Russia-Ukraine conflict

CEO Rick Hunkin said the conflict between Russia and Ukraine will have a minimal direct impact on the bank in terms of direct exposure. "We will continue to monitor the possible inflationary pressures," he added. 

Later in the conference, Cordina elaborated that many of the higher production costs are being cushioned by government intervention. "Such interventions can only help to mitigate and phase in the impacts, which will probably mean that there will be negative supply-side and cost-push increases in inflation in the next months and years on a permanent level."

"Economy standards will have to react, especially in a country affected by smallness and isolation, with the implication on costs."

Cordina added that there is a possibility of an uptick in interest rates in the Eurozone "as early as June this year", especially after the US Federal Reserve decided to increase rates by 0.5 percentage points.

"This would entail that our liquidity can obtain better pricing in our balance sheet, and imply a positive impact on our performance this year."

Fitch downgrading

Fitch Ratings downgraded BOV to BBB- on Wednesday, but Hunkin said that this was due to a change in methodology. 

"We were on their watchlist in the first place, but there was a change in methodology. This is not a signal of increasing risk but because of the introduction of new mathematical rations where, in one particular area, our product performance put us in a different rating bracket."

The updated criteria in question introduced changes to the way Fitch assigns viability ratings. The changes include a fixed weighting to derive  an implied viability rating from the bank's scores for each key rating driver. 

BOV was one of the four European, Middle Eastern and African banks placed under criteria observation.