BOV chairman committed to seek solution to fund episode

Bank of Valletta chairman Roderick Chalmers said he accepted “full responsibility” for the under­performing property fund affair and it was with this sense of responsibility that he would continue to apply all his time, energy and effort to seek a resolution to the episode.

Mr Chalmers rejected the Malta Financial Services Authority’s conclusions and insisted the bank planned to contest them, if necessary at judicial level, because he maintained that the bank’s interpretation of a disputed investment restriction clause was correct.

Mr Chalmers said the bank and its subsidiary Valletta Fund Management were “not happy at all” with the €347,816 fine imposed by the MFSA on Wednesday.

He insisted all the regulator’s findings of breach stemmed from the differing interpretation that the bank and the authority had of Investment Restriction (v). The MFSA says the bank made investments on behalf of its clients that had a higher risk than what they had actually told clients. Backed by a technical position, the bank insists this is not the case.

Mr Chalmers said he was satisfied that the bank’s interpretation of the investment restriction was “strongly supported” by the market practice and market research.

“The MFSA’s findings are disappointing but not wholly surprising given previous exchanges. We believe we have submitted powerful evidence to support our position and we are particularly concerned that the authority found that we did not apply ‘due care and diligence,” he said. Mr Chalmers stressed that the regulator’s conclusions that the bank fund managers had failed to act with due care and diligence and that they had reported inaccurately “will fall away automatically” if the authority’s “base conclusion” were to be overturned.

He acknowledged that the MFSA’s findings and the wording contained in the statement were damaging to the bank’s standing and reputation: “Taking a different view on an interpretation does not mean that our people were not careful and were not diligent. That has a significant impact on our people, which is why we feel we are obliged to appeal.”

He conceded that the affair was having an impact on the bank, though he dismissed rumours that there was an exodus of investors. “There is an active effort for investors to move their portfolios and we are not happy but it is not an exodus of any substance,” he said.

Mr Chalmers said the regulator’s decision did not affect the €45 million buy-back and compensatory offer made to about 2,200 investors in the underperforming fund.

He said the offer, which closes on June 30, had already taken into account the differences between the bank and the MFSA. “No adjustment to the offer price is therefore required as a result of this decision.”

A wide-cross section of investors were calling at all levels of the bank — including the chairman’s office – for more information on the offer. Mr Chalmers said investors recognised it was a “fair and decent” initiative and take-up was positive and satisfactory.

The MFSA’s findings this week concerned the first of three issues investigated by the regulator. A second deals with allegations of mis-selling and a third is probing allegations that some investors had access to privileged information and withdrew money from the fund before it was suspended in 2008.

Mr Chalmers said there was a small number of official complaints of mis-selling levelled at the bank and investors with a bona fide complaint over how they acquired their holding in the fund were entitled to pursue their claim through the MFSA.

He again “categorically and emphatically” refuted allegations that bank directors, family and friends had withdrawn millions of euros on the basis of insider or privileged information.

In its own internal investigation, which it shared with the MFSA, the bank had demonstrated beyond any doubt that the level of redemptions in 2008 was average when compared to the rest of the market, caused by the market conditions prevailing at that uncertain time.

“Does that mean there were no investors who redeemed their shares who were bank staff? Of course not. But neither does it mean that the very small number of staff members that redeemed their shares did so only because they had access to information. Does it mean that a director of the Sicav who redeemed shares – something that was fully and publicly disclosed at that time – did so because he had access to information? Absolutely not.”

Mr Chalmers said the bank went to great lengths to ensure that any discussions on the fund and potential suspension were kept highly confidential.

“If, and I insist that only if, there is anybody who has acted in breach of trust by using information in a manner that they shouldn’t have, whether on the property fund or, indeed, on any other matter – because we work on the basis of trust – then we will take the most serious view,” he warned.