BOV feared Naples court was ‘under pressure’ to give €370 million Deiulemar pay-out

Bank of Valletta claims it backed out of legal defence in appeal, fearing Italian courts were influenced by popular outrage on Deiulemar bankruptcy in which 19,000 lost their life savings

Investors from the 13,000 bondholders whose savings were wiped out in the Deiulemar €800 million crash take to the streets of Torre del Greco, Naples
Investors from the 13,000 bondholders whose savings were wiped out in the Deiulemar €800 million crash take to the streets of Torre del Greco, Naples

Bank of Valletta has given in to popular pressure ahead of its virtual AGM, and will host a physical meeting for shareholders and its directors for a question-and-answer session on the bank’s Deiulemar fiasco.

The bank issued a FAQ on its €182 million settlement with the 13,000 bondholders from the Italian village of Torre d’Annunziata, which was holding the bank responsible for €363 million funnelled off by the bankrupt Deiulemar shipping company into a BOV trust.

The meeting will be held on Wednesday 15 June at the Hilton Hotel in St Julian’s.

“The Board of Directors is sensitive to the requests made by shareholders, and it was a discussion with the Malta Association of Small Shareholders that led to this session being organised,” the bank said.

“Requests over the past days for the AGM to be held physically came at a time when preparations for the Annual General Meeting to be held in a virtual manner were well advanced and could not be changed. The AGM could not be postponed and changing from a virtual AGM to a physical one was not possible at that stage.”

For the first time, the bank has given clearer answers about its decision to back down on its Italian litigation with the bondholders of the shipping company.

“This settlement is really about managing the Bank’s litigation risks,” the bank said, still insisting that the claim against it has no legal merit. “This reflects the independent opinions of four legal firms in Malta and in Italy.”

But the bank also felt that the Italian courts deciding the case were subject to popular pressure from the outrage of the town impacted by the Deiulemar case.

“Torre Annunziata is an Italian town south of Naples with a population of about 40,000, of whom 13,000 lost significant amounts of their life savings due to the Deiulemar failure. The public outcry and political pressures not only within the region, but at times also at a national level in Italy, are factors which impinge on the litigation risk that the bank was facing in defending this case in Torre Annunziata.”

The bank in fact said it was fighting the case in “a conditioned environment” that influenced the first court’s judgement, which decided in favour of a €370 million claim by the bondholders.

BOV said it was risking that the appeals court in Naples would equally confirm the first judgement, despite its own legal advice.

“Tthe Bank’s position would have been significantly worse than the out-of-court settlement, and possibly even worse than that emanating from the initial court ruling,” BOV said, calling the settlement a “significantly lower proportion of the worst-case risk scenario”.

BOV said that it made previous offers for a settlement, but said the Deiulemar bankruptcy representatives were “unwilling to accept any offers at the levels put forward”.

“There are different stages during such proceedings at which, for instance, the simple statement of a judge or the change in position of the counterparty may open up opportunities for settlement discussions,” the bank said.

The bank said that its “robust appeal” could have opened the door to the final attempt that convinced the Deiulemar bankruptcy representatives to accept their offer.

BOV added that it had already opened a fair trial complaint at the European Court of Human Rights, due to the venue of the court case. The ECHR ruled that the Italian judicial process needed to be completed and remedies exhausted locally before it would hear the matter.

“Given the risks presented by this case related particularly to fair hearing issues, the Board believed that this settlement presented a better outcome for the Bank than any other available alternative.”

BOV said its trading results will be impacted by around €100 million this year due to the €182 million settlement, with the full year position reflecting normal trading results for this year, minus the €100m net impact. “Only this year’s trading will be negatively impacted. We will be able to remove the opportunity cost associated with holding higher capital for this contingent liability, leaving the Bank in a better position to grow its balance sheet and distribute dividends.”

The bank even gave a precise explanation of chairman Gordon Cordina’s “existential risk” comment, saying the real risk of a negative outcome on appeal would have “severely curtailed the options available to pursue its future ambitions in their existing shape and form”.

“It is also very likely that the period from recovery from such uncertainties would be extensive, possibly reaching 10 years or more.”