Updated | Court orders €111 million compensation to National Bank of Malta shareholders

The heirs and shareholders of the defunct National Bank of Malta, the nationalised forebear of Bank of Valletta, are entitled to €111 million in compensation, a Maltese court has ruled after 42 years since the bank went under government control.

Mr Justice Joseph R. Micallef ruled in favour of two cases deaing with the same constitutional claim filed by two groups of NBM shareholders back in 1992, for the government to pay €44 million in compensation to 33 separate shareholding claimants, and €66 million to another group of 49.

The National Bank was nationalised after a run on its reserves in December 1972 by depositors that were spurred by massive withdrawals from government-owned companies. Shareholders, many of them linked to Malta’s old nobility, were left without any compensation by the Mintoff administration of the time.

The Court ordered that the compensation be paid out by the Prime Minister and the Ministry of Finance, as the defendants in the case.

Orginally, the NBM shareholders had submitted a claim for €325 million in compensation. Government consultants however insisted in the courts that the valuation was based on “unrealistic and invalid assumptions… This fails to recognise the success of BOV was due primarily to the ownership of GOM which restored public confidence in the bank by fully guaranteeing all deposits which NBM would have been unable to do.”

In October 2014, a Constitutional Court confirmed a court decision that found that the shareholders’ rights had been breached when they were forced to surrender their shares, overnight, without any compensation. It was a harrowing example of the late Dom Mintoff’s uncompromising, and heavy-handed style of government. Another decision upheld by the Constitutional Court later recognised that the shareholders were entitled to compensation.

The Maltese government’s contention has always been that when the National Bank of Malta fell victim to a depositors’ run in December 1972, its shares were worthless.

The National Bank of Malta was hit by a run on its reserves back in December 1972. The Central Bank of Malta had refused to act as lender of last resort, allegedly blocking attempts by Barclays Bank to loan money to the NBM. In four days, the run on the bank saw enormous withdrawals totalling at least Lm2.5 million.

Around 350 shareholders later lost their shares after they were forced to sign them over to the government, without compensation.

Prime Minister Dom Mintoff had threatened in parliament to extend the liability of the shareholders, extending it beyond the bank’s capital to their personal assets. In an address to the nation on TV, Mintoff compared himself to a cowboy “firing a shot in the face of a cattle stampede” to stop the run on the bank by nationalising it.

Upon takeover, a Council of Administration produced a balance sheet claiming a negative equity of Lm253,000. The NBM shareholders claim this was achieved by excessively inflating the bank’s doubtful debts, and through a property index that devalued collateral for the loans issued by the bank.

The Nationalist government had at one point offered the National Bank of Malta’s shareholders €25 million for the shares they signed over under duress on the eve of the 2013 election. “Any government should see what the fair value of the shares are before a court gets to decide how much compensation the National Bank shareholders will get,” he had told this newspaper.

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