The HSBC Group chairman on morality

Johanna Ripard's interview with Stephen Green (The Times Business, March 18) makes interesting reading especially as this shows the high standards of morality of the HSBC Group's chairman, an ordained minister of the Church of England. These qualities are demonstrated in his book Good Value: Reflections on Money, Morality and an Uncertain World.

The purpose of this article is to bring to his attention a legacy inherited by HSBC Bank Malta (HSBCBM) when it acquired a controlling interest in the then Mid-Med Bank (MMB) in 1999. I write having been MMB's first general manager (1975-1980) and therefore well acquainted with the negotiations between the government and Barclays Bank leading to the formation of MMB on October 1, 1975, especially in regard to the particular circumstances leading to the setting up of the MMB Staff Pension Fund (MMBSPF).

There is a lot to be said about how, over the past 23 years, HSBCBM has done its utmost to resist in the Malta courts the claim made against MMB by some 500 former MMB employees who had resigned voluntarily between 1975 and 1987 when the MMBSPF was liquidated by MMB totally ignoring the legitimate rights of those former employees.

Space precludes me from going into detail and so I will restrict myself to the main reasons why these former MMB employees, including myself, feel cheated firstly by MMB and, secondly, by HSBCBM's persistence in contesting the matter in court where the matter still rests because the aggrieved parties have sought a retrial (more later). The salient and undisputable facts are:

1) The government, as majority shareholder in MMB, had agreed to the establishment of the MMBSPF - at a time when private pension schemes were considered as taboo - so as to compensate the MMB staff for the reduction of salaries prevailing in the predecessor bank, Barclays Bank. Thus, the sole reason was that this was a form of "deferred pay". In fact, the fund was non-contributory on the part of employees. Indeed, even the Central Bank of Malta (CBM) Governor who led the negotiations for the government with Barclays confirmed this when called as a witness before the Court of First Instance, corroborating what I myself had sworn under oath before the same court. Suffice it to say that I personally suffered a 40 per cent reduction in my previous Barclays salary.

2) As from MMB's first full financial "year" to December 31, 1976 the bank, as it was bound to do, made an annual contribution to the MMBSPF, calculated by UK actuaries, by transfering to an account with the CBM pending finalisation of all the legal formalities for the setting up of the Mid-Med Bank Staff Pension Association (MMBSPA), as managers of the MMBSPF. Quite rightly, MMB annually obtained full income tax relief on all such payments.

3) This continued annually until 1979 when all the requisite notarial deeds were duly signed between MMB and the MMBSPA. Significantly, these included clauses such as:

"The Managers stand possessed of the Fund."

"The Bank may from time to time alter or amend any of the provisions of the Rules or insert new provisions ... provided no alteration shall be made which (a) will cause the main purpose of the Fund to cease... or (b) which will result in the return of any moneys to the Bank."

"The management of the Fund shall be vested in the Managers and the decisions of the Managers shall on all matters connected with the Fund and its administration be final and binding."

4) Thus there can be no doubt that MMB had divested itself of the funds put aside for the MMBSPF. Indeed, on signing of the notarial deeds, all funds accumulated on the account held with the CBM were duly transferred to the name of the MMBSPA. This was confirmed to me, as MMB's then general manager, by a letter dated February 23, 1979, a copy of which was included among the documents presented to the courts by plaintiffs' lawyer.

5) So can there ever be any doubt that MMB had no further control over these funds? No, so was the considered opinion of three legal referees appointed by the First Hall! Unfortunately, these legal referees appointed by the court did not include at least one accountant who would doubtlessly have disagreed with the legal opinion expressed, as anyone with a financial background would have proved that MMB no longer had any control over these funds, more so as these did not even feature among MMB's assets in its audited balance sheet! The court relied on the opinion expressed by the three lawyers, one of whom, it transpired, had not declared his conflict of interest despite his having been entrusted by HSBCBM to handle various court cases on behalf of that bank!

6) The First Hall Judge decided the case against the former MMB employees, basing himself mainly on the opinion expressed by the legal referees. In fairness, plaintiffs had not then raised the conflict of interest aspect but this important point was later brought up by plaintiffs before the Court of Appeal. It is worth noting that the legal action by plaintiffs was instituted against Riccardo Farrugia noe, then MMB chairman and a former judge of the Malta judiciary.

7) Plaintiffs took the case to the Appeal Court whose decision supported that of the First Hall. Although the three judges censored the referee who did not declare his conflict of interest, and stated that they had ignored the relative referee's report as it might not have been impartial, nevertheless they came to the same conclusion and ruled that plaintiffs had no right to the funds accumulated on the MMSPF. This notwithstanding emphasis by plaintiffs' counsel on the CBM's own declaration as to the name of the account holder in their records (not MMB); on the conditions incorporated in the notarial deeds; and on MMB's infamous statement in its 1988 audited financial statements that the bank had decided to "write back" no less than 29 per cent (Lm1,451,000) of the funds held on the account with the CBM in the name of the MMBSPA.

8) Evidently, MMB managed to persuade the few hundreds of ex-MMB staff still in employment at the end of 1987 to accept sharing among themselves a lump sum of about Lm3.5 million from a total of just over Lm5 million on the above-mentioned account. The amount illegally clawed back by MMB was utilised to bring up to a fully-paid-up status the partly-paid shares then in issue (all held by the government) thus benefiting the shareholders to the detriment of the other former MMB employees' legitimate rights. This enabled the government to make, soon after, a public offering of 25 per cent of its equity as fully-paid-up shares and at a premium on the nominal value!

Briefly, these are the facts. All the circa 900 former Barclays staff worked assiduously for MMB despite having to accept a lowering of their and their families' standing of living as a result of substantially reduced earnings. Yet only those few hundred still in employment in December 1987 benefited from the MMBSPF while some 500 did not. I ask if it is considered morally correct for HSBCBM to have resisted so vigorously the claim of the aggrieved former MMB staff to their share of the MMBSPF, the sole objective of which was to compensate the MMB staff for the reduction of salaries brought about by the government's policy that salary scales of all parastatal bodies had to be aligned with those ruling in the civil service.

Unethically and immorally, HSBCBM has been playing for time seemingly in the hope that plaintiffs will lose all hope of seeing justice prevail in their lifetime. Many of the aggrieved former MMB staff are now senior citizens. Yet the battle goes on as we have sought a retrial. Being probably unaware of all this, Mr Green is unlikely himself to have given due regard to the ethical and moral implications of this case which may well end up before the Malta Constitutional Court (and, possibly, even outside our shores now that Malta is a member of the European Union).

It is as well to mention another case with similar, but not identical, connotations, which was initially resisted before the local courts by another local company, Go as successors of Telemalta Corporation (formerly Cable & Wireless). In that case the pension rights claims made by former C&W employees were acknowledged by the Malta Courts after some 30 years of litigation. Go initially announced it was considering seeking a retrial but then gave up the idea and the company ended up having to make a provision of €12.8 million in its audited accounts, which funds, I understand, have since been disbursed to the rightful claimants.

Time will tell if justice will eventually be done with the aggrieved former MMB employees whether as a result of a court decision or through an out-of-court settlement following Mr Green's intervention. The title of Mr Green's book includes the words "Morality and an Uncertain World". What is certain, to my own mind, is that in a miniscule part of the world the HSBCBM board members could do with a lesson in morality.

In the course of an interview (The Times Business, December 10, 2009) HSBCM's CEO, Alan Richards, said that the bank looked back with pride on its 10 years in Malta which, he stated, have been "an unqualified success". The bank and its shareholders have benefited from this success but, regrettably, such prosperity has not been used by HSBCM to erase the legacy the bank inherited from MMB vis-à-vis a large number of its former loyal employees.