BoV pre-tax profits climb 21 per cent to €98.9 million

Bank of Valletta Group yesterday reported pre-tax profits for the year ended September 30 of €98.9 million, up 21 per cent from the €81.8 million reported in 2009.

The figure is just shy of the record €101.8 million operating profit BoV reported for 2007.

The board of directors is recommending a final gross dividend to shareholders of €0.16 per share. With the gross interim dividend of €0.075 per share paid earlier in the year, the total gross dividend adds up to €0.235 per share for the year. The bank paid a €0.20 dividend per share last year, adjusted for the bonus issue.

A new bonus issue of one share for every five held is being recommended by the board, effective January 12, 2011, to be funded by a capitalisation of reserves of €40 million.

Chairman Roderick Chalmers yesterday attributed the financial year’s “good set of numbers” to the bank’s retail and corporate business performing well and a turnaround in the results of its interests in the insurance sector through Middlesea Insurance and Middlesea Valletta Life.

In his customary detailed review of the year’s performance, Mr Chalmers listed the contributing factors to 2010’s bottom line. The net interest margin rose by €11.3 million over the previous year through increased volumes and the time-lag effect on the re-pricing of deposits. Net commission and trading income grew by €11.5 million over 2009.

“This improvement has come from a wide cross-section of the group’s business activities: higher foreign exchange volumes, cards business – including e-commerce – showing strong growth, and various investment-related activities producing satisfactory results,” Mr Chalmers explained. “This sector has benefited from a marked change in sentiment as investors regained their appetite for the equity and bond markets after the turmoil of 2008 and 2009.”

The chairman pointed out prudent management of the balance sheet resulted in a “very satisfactory” liquidity ratio of 41 per cent and “strong” Tier I capital ratio of 10.5 per cent, prematurely positioning the bank where international banking authorities “want us to be in 2019” under Basel III proposals.

Total capital stood at 15 per cent (2009 – 12.5 per cent), thanks to the injection from the €70 million subordinated bond issue in March. Total assets amounted to €6.3 billion; shareholders’ equity at €469 million.

Despite strong competition for deposits and government and corporate bond issuance, deposits grew by €419 million (nine per cent) to reach €5.19 billion. Bank of Valletta sustains its position as market leader in the domestic euro-deposit retail and corporate sectors.

Operating expenses for the year increased by 2.3 per cent to reach €78.8 million; the group continued to invest in human resources and IT but management’s focus on cost-containment remained, particularly through greater use of electronic media.

Most of the €6 million gain reported in the interim results on the reversal of the unrealised fair value movements booked in previous periods was hit by the uncertainty in the capital markets and widening of spreads on some issues in the second half of the year. Net fair value for the year showed a slim recovery of €1.2 million.

A further €4.8 million before tax was credited to reserves, representing favourable movements in the value of the ‘available for sale’ portfolio.

The impact from the group’s interests in the insurance sector amounted to €0.5 million, down considerably from the €9.9 million charged in 2009, reflecting Middlesea Insurance’s improved performance since January and the end of operations of its loss-making Italian subsidiary Progress Assicurazioni SpA. Mr Chalmers added life company Middlesea Valletta had moved swiftly during the year to implement a board-mandated initiative to transform itself into a self-sufficient standalone firm.

As expected, Mr Chalmers referred to the series of judicial protests filed by investors relating to the La Valette Multi Manager Property Fund received by La Valette Sicav, Insight Investment Management and various BoV group companies over recent weeks. The Sicav and the bank’s subsidiaries had filed counter-protests.

The chairman said “with great sincerity” the bank greatly regretted the fund’s poor performance and the impact this had on its investors but emphatically and categorically rebutted any suggestion investors were in any way misled.

“Bank of Valletta believes both the SICAV and Valletta Fund Management have been very open since 2008 about the serious difficulties that had emerged in connection with the investments made in the Belgravia funds, and the work that was being done to mitigate matters. The SICAV and VFM have been open and transparent about the problems concerned,” he said.

Mr Chalmers said insinuations redemptions experienced by the property fund in 2008 were unusual and that any investors may have been granted access to privileged information to enable them to redeem their holdings were “grossly offensive”.

He added BoV had formally requested the regulator conclude its review on redemption activity urgently so that the matter could be laid to rest as soon as possible.

“A simple comparison with other publicly available information relating to funds operating in Malta has shown that the level of redemptions experienced by the Property Fund in 2008 was very much the norm experienced right across the market, reflecting the volatile market conditions prevailing at that time,” Mr Chalmers pointed out.

“We are confident that the review will demonstrate that the bank acted very professionally, and took all reasonable measures to guard the confidentiality of the deliberations that necessarily took place concerning the question of the suspension of dealings in the fund, and that internal procedures in this regard were respected at all times.”

While respecting any party’s right to take commercial issue with the bank and to engage it in arbitration or litigation, Mr Chalmers deplored the “irresponsible and unprofessional” approach adopted by some complainants which aimed to call into question the bank’s integrity and could potentially damage the jurisdiction’s reputation.

Mr Chalmers, who has travelled to Jersey to meet regulators, said the bank was working very hard to mitigate losses and it would face up to its responsibilities if its decisions were found to have been wanting.