There has been a dramatic fall in the profits of Bank of Valletta, and of American, British and Swiss banks. The same has not happened with the recently floated International and Commercial Bank of China (ICBC), currently the leader of China's stock exchange and the world's biggest bank.
This fall has been undoubtedly due to a decline in ethical standards. Lord Evelyn Rothschild, who belongs to a banking dynasty which during the last 200 years has been, along with J.P. Morgan, a mainstay of Western capitalism has written so much in the Financial Times. The burning importance of Sir Evelyn's words has to be seen in conjunction with the rather unsuitable statement coming from Marcus Agius, the Barclays chairman, about the capital ratios in the banking system reported in the Daily Telegraph.
Agius is a part of the Rothschild family not only because of his marriage to Edmund Rothschild's daughter, but also because he has had a meteoric, hard-working career with Lazards. These can be considered to be, if not brothers to the Rothschild's, at least their cousins, within the great western banking fraternity. Agius has stated that a Tier I capital ratio of about five per cent was adequate for Barclays when the European average was 6.5 per cent, and that of HSBC eight per cent. The FT's Lex column laughed at his statements and pointed to the funny behaviour of the Barclays share price.
This was indicative of a serious loss of credibility of Agius' bank with investors. At the last Barclays shareholders' meeting, Agius said that there was no 'religion' with regard to banking ratios. They were unfortunate words, coming as they did at a time when there is obviously a banking blizzard blowing over American, British and Swiss banks. It is not ethical on the part of the bank to solicit deposits, while being inadequately supplied with the capital required to withstand a run.
There is nothing worse than banking personalities, especially if they are Agius, making statements which are almost immediately contradicted by concrete measures. People are fed up with banks and analysts making fools of themselves. The ethics of transparency demands that investors feel confident in the integrity of bank declarations and of analysts' forecasts.
Lack of transparency breeds fear, and when an economic blizzard blows, there is nothing more to be feared than 'fear' itself.
More must be known about how Bank of Valletta lost its hefty millions. After all, HSBC, which in Malta did not lose a penny, over a year ago came clean about its subprime losses in the US. Its transparency has been rewarded: a 20 per cent-plus share price rise in the last couple of months. UBS has fallen in these last months by 37 per cent, while it has had $38 billion in write-downs.
A banking blizzard is indeed blowing, enough to call for the intervention of a Rothschild, who has not merely sought to pour oil on troubled waters, but to point out that modern banking needs a painful reassessment of attitudes. This is also required in this country, where our stock exchange breeds nothing but disappointment.
When will the shares of BoV and MSI begin to demonstrate what can be expected of their hardworking and qualified employees? The answer is: When these two great institutions are privatised. Proper dividends must be paid to long-suffering shareholders. This is the only way our government can stop an economic blizzard.
This can possibly throw it out of power, much sooner than expected. Economic blizzards hurt shareholders, but economic history teaches us that politicians have much more to fear.
The fundamentals of the Maltese economy are excellent. In 20 years there has been an 88 per cent rise in GNP, in the past six months Malta has moved from 33 to 31 in the credit rating position out of 174 countries. This rating is the average opinion of 500 banks, made by the Institutional Investors Magazine of Wall Street.
Mr Azzopardi Vella, economic consultant with DBR Investments Ltd, has promoted the Malta Development Fund and advised S & P.
johnazzopardivella@hotmail.com