Deiulemar pay-out hits raw nerve for National Bank shareholders still awaiting justice

Seven years have passed since a Maltese court found that the rights of National Bank of Malta shareholders were breached during the forcible takeover of 1973. But compensation has not yet been set: the BOV-Deiulemar settlement only pours salt on this historic wound...

Bank of Valletta may have drawn an expensive, €182 million line under Italy’s biggest shipping scandal.

But its shareholders are up in arms about the bank’s cavalier approach to its major litigation cases, which have raised questions about the way Bank of Valletta has dealt with its shareholders, investors as well as accusers.

In the last decade, BOV’s top management, CEOs and politically-appointed chairmen (the Maltese government retains a 25% stake in the bank) have been held up to a harsh light with the €80 million La Valette Property Fund settlement, the €26.5 million paid to fend off the Swedish ‘Falcon Funds’ pensions headache, and now, an unprecedented settlement with Italian bondholders from a village in southern Italy, whose investment in a shipping giant was fraudulently placed in a BOV trust.

For years on end, BOV played down the complaints and representations of those who challenged it on its investment mishaps: the stockbroker Paul Bonello single-handedly forced the bank into settlement with La Valette fund investors after incessant pressure on the sluggish MFSA; the lack of due diligence on Falcon Funds became a misadventure brought about by a conman who bled a private pension dry; and now the Deiulemar mystery, where over €360 million in investors’ cash was moved into a banking trust.

Now the bank is adding insult to injury with a remote AGM that will allow them to forestall and dodge shareholders’ loud complaints on shredded dividends and share prices.

But some observers watch this poor show with wry reflection. To Jeremy Cassar Torregiani, who grew up in the shadow of the National Bank of Malta’s forced nationalisation by the Mintoff administration in 1973 – a takeover that induced a fatal heart attack for his grandfather, director and shareholder Frank Cassar Torregiani – the BOV out-of-court settlement is a wound that cuts very deep.

It was only in 2014 that a Maltese court ruled, for the second time, that the National Bank’s forcible nationalisation had violated its owners’ rights, in a case filed by 30 shareholders who back in 1973 had refused to sign over their shares to the government. Seven years later however, the Maltese law courts are yet to conclude what the amount of damages to be awarded to the shareholders is. The wronged side is claiming over €360 million in compensation.

“The matter drags on in front of the Maltese courts as it has for 50 years. The partial judgement won also under appeal has yet to deliver a remedy leaving the defrauded shareholders frustrated by the operations of the ‘mafia state’,” Cassar Torregiani says, who despite his family pedigree as Malta’s former banking magnates, views his family as having been spat out by the political establishment that followed from the 1970s onwards.

“Similarly, the Deiulmar saga defrauding shareholders of their dividends without the responsible people facing consequences, is yet another example of the corruption that has plagued our islands, pushing her every more closely towards a mafia state,” he says.

Cassar Torregiani thinks the ‘mafia state’ is still at work, by preventing the National Bank of Malta shareholders from claiming their rightful dues.

“The shareholders, the press and the institutions that are upset about the consequences of the Deiulemar fiasco, should realise that without the protection of the mafia state a similar fate awaits them, in the value of the whole bank which is the claim made by the shareholders in the National Bank of Malta for the full restitution of the Bank to its legitimate shareholders.”

For Cassar Torregiani, whose family suffered the forced nationalisation of the bank and was locked in a 50-year court battle to recognise the breach of their rights and obtain compensation, the bank’s sins extend far back in history. Calls by shareholders demanding responsibility on Deiulemar to be shouldered by the bank’s directors, fail to scratch the surface of the injustice that BOV represents for these former shareholders – many of them also members of the Maltese nobility and the island’s first bankers (the Scicluna, Cassar Torregiani and Tagliaferro families) who were wrested from the bank’s control by a run on its deposits, suspiciously engineered by the State.

The run had culminated at the end of a week of withdrawals with Lm500,000 withdrawn in a single day on 10 December 1973, leaving the bank with only 30% of liquid assets out of its total deposits – 5% more than the minimum required by law.

The bank’s owners were effectively forced to capitulate to the Labour administration of the time, when the Central Bank of Malta refused to extend liquidity from the bank’s own reserves of Lm8 million, to cover the orchestrated run. They were made to sign off their shares, without compensation, before other banks like Barclays or Midlands could step in to extend finance.

It was an arbitrary decision by the Central Bank that was later compounded by the new, government-owned Bank of Valletta’s annual figures in March 1974: its loan book with major Maltese companies was revalued, to make it look as if the debt would have been unrecoverable.

“Suffice to say that one of these adjustments was to put the Corinthia loans, which were the largest the Bank had given out to kick-start the tourist industry, were presented as bad and doubtful advances that could never be recovered,” Cassar Torregiani says of the Maltese hotel chain that today has expanded internationally.

“As such they had to be paid for by the predecessor shareholder. If Corinthia were presented as a bad debt, how and why were the personal guarantees never called in so as to make good for the losses? If reversing this one transaction alone could have put the very bank that funded the enterprise, back into positive equity... how is it possible that the government was able to justify the transfer of this business to Bank of Valletta for no consideration?”

Cassar Torregiani is prickly about the most intimate details of the National Bank’s unravelling, expecting that criticism of BOV be extended to the beneficiaries of the loans that were never called in – the Corinthia’s included. “The usual omertà from all concerned, including the Pisani family who benefitted, continues with the press and everyone else happily ignoring these facts in perpetuity.”

He insists that merely taking BOV to task over the Deiulemar fiasco, cannot be divorced from the bank’s roots in its forced nationalisation of 1973.

“By normalising corruption in the theft of the Bank of Valletta, people who think of themselves as legitimate champions for truth and justice are not. You cannot fight the mafia state and ignore the corrupt roots of the Bank of Valletta concurrently. Those who do will soon realise that they are just as much a part of it, and as happened to the PN, will also become helpless and hopeless to fight against it.”

Cassar Torregiani says there are limits to Malta’s cavalier attitude towards property rights and the National Bank of Malta case.

Just like requisitioned bank properties which the shareholders managed to retake control of after successful European Court of Human Rights cases, Cassar Torregiani thinks Bank of Valletta and the government are delaying the inevitable on the 1973 nationalisation.

“The settlement of half the claim in Deiulemar shows that the BOV knows this, and settled out of court. The fact that BOV in its entirety is at stake by the claims made by the defrauded shareholders in the National Bank of Malta, should now awake even the most obstinate and powerful of criminals into a call for justice, lest they are met with a similar situation when BOV is no longer covered by the 50-year-long protection offered by the failed Maltese justice system.”

The NBM compensation saga: what shareholders are asking for

The shareholders of the National Bank of Malta said they are owed €325 million in compensation for the shares taken away from them by the Mintoff-led government at the time.

The financial appraisal, carried out by banker Anthony R. Curmi (also a former board member of Corinthia Finance plc, and brother to Vincent Curmi, a director of Sciclunas Estates, the landholding company for the heirs of Marquis John Scicluna, whose bank was one of the precursors of the NBM), was met with a disparaging reception by the government.

Its own financial consultants insist the National Bank shares had no value when the bank was nationalized.

In October 2014 a Constitutional Court confirmed a court decision that found that shareholders’ rights had been breached when they were forced to surrender their shares, overnight, without any compensation. Another decision upheld by the Constitutional Court recognised that the shareholders were entitled to compensation.

The compensation claim will have even more serious implications if the 49 shareholders and their heirs take the matter to the European Court of Human Rights, to force the government’s hand in paying out compensation.

Curmi’s appraisal is that the €325 million claim “constitutes a fair and reasonable compensation” for the Lm7 million he says was the net asset value of the bank in 1973.

The government’s consultants – former IMF consultants Piero Ugolini, Richard Nun, and Larry Chilton – say Curmi’s assessment is 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 NBOM would have been unable to do.”

They also blamed the National Bank of Malta of having a “history of self-serving and imprudent management practices”, which endangered the bank through non-performing loans that increased bad debts. “Government had no choice except to intervene in order to protect the depositors and creditors and to preserve stability of the broader financial system.”

Inflated bad debts

Upon takeover, the Council of Administration produced a balance sheet claiming a negative equity of Lm253,000, which the NBOM shareholders claim was achieved by excessively inflating the bank’s doubtful debts.

Curmi says the bank’s own properties were significantly undervalued by the Council, no provision was made for the goodwill from its 27 branches across Malta and Gozo, and that provisions for bad debts were raised by 151% from Lm2.3 million to Lm5.9 million.
This was based on a property index created by the bank’s staff on the collateral held on the loans issued by the Council, which claimed that villas, houses and apartments had fallen in price by 36.6% and the price of undeveloped land by 84%. This allowed the Council to raise the provision for bad debts.

But by 1978, Bank of Valletta managed to reduce the bad debts by Lm4.3 million over a period of just five years, and debts that had previously been classified as ‘unrecoverable’ were nearly all recovered in full.

On its part, the government’s consultants are insisting that 1971 was the tail-end of a boom-and-bust period in which a sharp drop in prices was still evident in 1972, according to sample surveys carried out by the Central Bank.