Dr Ragonesi, Maltese banks and investment opportunities

Dr Victor Ragonesi recently wrote an article in The Times, entitled 'The interest of the country and its citizens', which was widely read and discussed not only in the law courts, where in spite of his age, he is a very vigorous and active lawyer.

Dr Ragonesi needs no introduction for those of a certain age. Everyone remembers him as one of the architects of independence and of our present economic prosperity. He stood by the side of the inscrutable great Dr George Borg Olivier, and I have heard people say that it was impossible to understand Dr Borg Olivier if you did not stick on his face the moustache of Dr Ragonesi.

So when Dr Ragonesi wrote on Maltese banking, it was Dr Borg Olivier talking to us from the grave.

I found Dr Ragonesi to be not only surprisingly knowledgeable about the Italian banking scene, but his culture was deep enough to make him a strong partisan of Dr Antonio Fazio, the Italian Central Bank governor, who is vigorously against the takeover of Italian banks by their foreign, more dynamic counterparts.

I have no doubt in my mind, that Dr Ragonesi, in his brilliant, widely read article, was inspired by Dr Fazio's fight in favour of the permanent Italianity of Italian banks.

The coincidence of events in Italian banking and the recent stand of Dr Ragonesi on Maltese banking is far too close not to suggest a cross-fertilisation of ideas.

The position of Dr Ragonesi is by no means an academic one as it has vast implications for the identification of extraordinary investment opportunities both in Italy and in Malta for the rich, and even not so rich Maltese.

Banking has made Malta rich. Only wealth and successful investments can provide a foundation for the independence for which Dr Fazio fought so hard.

The European Union, with which Dr Ragonesi expresses solidarity, has no significance if there is no free movement of capital and labour across the boundaries of the proud European nations. The European nations are at present arguing which bank should buy the other bank but they are at least not drunk with the blood of mutual genocide.

Control of banking system

Dr Ragonesi asked categorically in his article: "Did we achieve independence and sovereignty in 1964, after thousands of years being ruled by others in a humiliating manner, so that after 40 years we would no longer be in control of our banking system?"

As regards the EU, Dr Ragonesi as a man of great Italian culture, quotes Dante: "I was and am in favour of the EU and I repeat Dante's words: Fra color che son sospisi. We could not remain alone, not knowing where we belong, where we are going and where our futures lies."

It is incontestable that in his article Dr Ragonesi displays strong enthusiasm for the idea of independence and more than a slight misgiving at to how the EU economy is being globalised. At this juncture Dr Ragonesi is one with Dr Fazio.

The future of Europe as a world economic power however lies not in the protection of sleepy banks, but in banks that can afford to pay hefty dividends to their investors. There must be competitive bank charges, not extravagant ones as there are in Italy.

This can only be done by building EU banks, which can have a world reach; an EU which wants to have dynamic banks must think about making bank shareholders rich, as Americans have grown rich by believing in their stock exchange in spite of the many setbacks that institution has periodically encountered.

What Dr Ragonesi failed to mention in his article is that independence is meaningless without an economy that displays vigorous growth. Such growth can only be achieved by its joining the process of globalisation.

Malta welcomes the coming privatisation of the Bank of Valletta. It will stimulate our stock exchange, to an even greater extent than has been done by HSBC. BoV has been close traditionally to Malta's commercial community, which has the credentials for promoting a new BoV.

Indeed, BoV's forerunner, the National Bank of Malta, was founded by Malta's entrepreneurial class, and it took an outstandingly prominent position in the Sixties in promoting Malta's industrial development.

What is little known is that Dr Borg Olivier took a personal interest in the running of that bank to the point of encouraging a vigorous overdraft policy. There would be no tourist industry of an appreciable size in Malta today without the groundwork that bank did in the Sixties.

The weakness of the National Bank is that it did not have a strategic partner, well embedded in Malta's economic life; neither were its shares traded on a stock exchange, an activity which would have supplied public support for its operations.

In the late Sixties Dr Borg Olivier dreamt of having a stock exchange, and had Ivan Burridge working on the project. It is a pity that Dr Ragonesi does not mention the words "stock exchange" once in his article.

What is the use of having a central bank in the country unless your banks' shares display an attractive buoyancy? If there is a bank that grossly misbehaves, as happened more than once in many a country, a sovereign state like Malta has every right to take it under control. No bank is above the law, whether foreign-controlled or not.

Italian banks

The Financial Times has continually pointed out in the past few weeks the extraordinary investment opportunity of Italian banks. This opportunity exists because Italy has Europe's highest saving rate (11 per cent) and it has a considerably lower level of consumer debt.

Italy is the world's sixth largest economy, and it is impossible for banks the likes of BBVA of Spain, and ABN Amro of Holland not to notice their opportunity. Their aggressive interest is causing a massive rise in the price of Italian bank shares, and not only of those of immediate takeover interest.

The international financial world is delighted to watch this progress, for this means that Italy will soon have a vibrant banking sector to match entrepreneurial organisations that have known how to create wealth out of nothing. Think of Ariston and Benetton.

The sixth largest economy in the world has a lot to teach us, and a study of how its corporate sector is reacting to this newly found European interest in its banks will help us understand the fears expressed by Dr Ragonesi with regard to the coming privatisation of BoV.

The corporate sector in Italy fears a loss of a credit lifeline as the Financial Times faithfully observed: "An Italian investment banker involved in one of the current take-overs says, 'There is concern at seeing the centre for decision-making move to a remote place if foreign banks take over. The popolari never made huge profits but they saw there was enough oxygen pumped into the structure of small and medium sized industries.'

"So Italian global business competitors and shareholders are bound to benefit from a newly found bank consolidation, but it is much more contestable whether the small and medium-sized industries, will benefit at all."

The probable development is that Italian family business will have to coalesce if they can survive at all. The Financial Times speaks of the intricate network of friendship linking politicians to bankers, which is bound to disappear when banks the like ABN Amro set their seal on Italian society.

These words are of significance in the local banking scene, where intricate networks of friendship resemble Malta lace.

Maltese investors

Dr Ragonesi's emotional article shows that Maltese banking is in the throes of a major transformation. What he fails to notice is that the economic world of 2005 is completely different from that of 1964. It is one where the shareholder has become king.

Governments in Italy are no longer leaders in the Mussolinian sense but in that of John Maynard Keynes. The cry is for shareholders to be given the chance to make money by having more banks on the stock exchange fighting for supremacy.

This is the cry of Corriere della Sera, Italy's leading newspaper. A cosy, clubby banking world leads to bank failure, economic contraction, and a loss of a country's independence, making it susceptible to the blandishments of undesirable characters in the world political configuration.

Malta will never be economically independent in the sense the United States is an economically independent country, but shareholder wealth will give its citizens a sense of pride, which is the first ingredient of independence.

Banking opportunities in Malta are legion, but how many are prepared to put their money where their mouth is? Bank promotion cannot be done on a financial shoestring. If a foreign banker sees an opportunity, which the local banker fails to grasp, he is welcome to operate in this island.

Malta has no co-operative banks on the German and Italian model. The Banca Popolare di Lodi is taking a big part in the Banca Antonveneta battle. It is fighting the colossus of ABN Amro.

Malta's trade unions have yet to wake up to the opportunity of creating their own bank. It is also obvious that if APS Bank were to seek a stock exchange listing, it would have tons of money tumbling into its lap.

A duty beckons APS. Let not its owner, the Church in Malta, forget the parable of the talents.

ABN Amro wants Antonveneta, because the financially knowledgeable of Italy know that it is close to the Vatican. The Roman Catholic Church is a financially significant organisation.

Dr Ragonesi, one of the selfless architects of Malta's prosperity, has made us think hard. Let us hammer a solution to Malta's banking problems with all men of good will, whether Maltese or foreign, lay or ecclesiastical. The money of Malta must not be left idle, but put to work on its stock exchange.

John Azzopardi Vella is an economist with DBR Investments Ltd. E-mail: johnazzopardivella@hotmail.com