Historian sees shades of grey in banking saga

Dom Mintoff.

A banking historian has appealed to the press, analysts and former shareholders of the National Bank of Malta to stop saying the case for compensation is straightforward.

Mintoff employed a methodology that was totally inhumane and shorn of diplomacy or prudence

Retired banker and University lecturer John Consiglio, who wrote A History of Banking in Malta, empathises with former shareholders who have been seeking justice for almost 40 years.

The shareholders were made to sign over their shares to the Labour government for free.

He acknowledges that former Prime Minister Dom Mintoff (who took over the bank in the 1970s) acted with his usual political bully characteristics, but he says this does not give “the totality of the picture”.

It is not enough to say the National Bank had substantial property assets that could have helped it overcome the run it faced from depositors.

“There is an important distinction between liquidity and solvency,” he says, adding that in the Bical affair (another local banking failure saga) the courts and regulators both refuted a similar claim.

A rumour, he says, is the easiest thing to create in Malta and nobody has ever really gone into the question of why, suddenly, many depositors withdrew their deposits.

Dr Consiglio says there is no knowledge about how the National Bank of Malta managed its liquidity.

He quotes a University thesis by Christian Azzopardi who argued that the main reason behind the collapse was lack of liquidity.

The bank, he wrote, suffered the catastrophic decrease in the value of the British government’s War Loan bonds in which the bank, like many others in Malta, including the Malta Government Savings Bank, had invested heavily.

“It may not have been a lost cause in the eyes of popular or unknowing shareholders’ eyes, but it may have been concluded to be very much so in the eyes of real experts in the regulatory sphere,” Dr Consiglio argues.

Meanwhile, the Central Bank of Malta had just been set up in 1967 – an institution structured in its regulation of the banking system on strict Bank of England rules.

“All the banks in Malta were being subjected to the early regular reporting and assessment rigidities that safety considerations in bank financial management gave priority to.”

The Central Bank of Malta had been “rightly” very guarded about its role during those times, Dr Consiglio says.

And its then Bank Inspection Unit, headed by Victor Lungaro Mifsud, would have unearthed all cases of over-lending or incorrect lendings made to unreliable people.

“Central banks are both very selective as to when and which banks to bail out and indeed that seems to be the way many citizens wish it to be in many countries: they do not accept very lightly that their governments should go around succouring every badly managed bank with their hard earned and paid taxes.”

Dr Consiglio admits that all this should not exonerate Mr Mintoff.

“To jump to any conclusion that Dom Mintoff handled the crisis well would be tantamount to swearing,” he says, adding that the former Prime Minister had a political and economic agenda that he was “absolutely impatient” to bring about.

Mr Mintoff also employed a methodology that was “totally inhumane and shorn of diplomacy or prudence”, with the shareholders treated in a cruel and unfair way.

However, this does not mean that the bank was “strong”, as many are claiming.

“Please let us all stop saying that the NBM was a strong bank. In banking, ‘strong’ is a word full of implications.”

Dr Consiglio’s comments come as the former shareholders prepare to restart negotiations with the government for an out-of-court settlement. Interest in the case was renewed this year with the release of the documentary about Mr Mintoff entitled Dear Dom.

The Sunday Times recently revealed that the government had in 2010 filed a fresh plea in court to drop the long drawn-out case on the grounds that it was time-barred when it was filed in 1977, outraging shareholders who expected a Nationalist government to deliver justice.

A decision on the case has been long in the offing and is expected to be delivered in September.