Historian sees shades of grey in banking saga
Former headquarters of the National Bank of Malta.
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.
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.
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Jeremy Cassar Torregiani
Jun 20th 2012, 16:16
@ Corinne Vella
Just to get on thing straight - the threat to remove the shareholders limited liability was enshrined in the law passed to take over the Bank. XLV 1973 - passed on the 12th of December 1973 incorporated a blanked clause (6) that gave the council appointed by government the ability to break any of the laws of Malta relating to commercial partnerships.
As a result the threat was not only made but enshrined in clause 6 so that the shareholders would be forced into signing away under the threat that they would loose even more.
Tal - misthija !!
Corinne Vella
Jun 20th 2012, 17:10
When Mintoff passed that law, he wasn't expected anyone to resort to legal means of redress. He was expecting the mob action that came to characterise his years in power, including the time his acolytes set fire to the Allied Newspapers building, while the police stood by and watched and he did nothing about it.
Jeremy Cassar Torregiani
Jun 20th 2012, 18:41
Exactly - which is why a judged told my uncle in open open court that if he expected a case like this to be heard that his place was in Mount Carmel and not in front of him..... Thank God he has the courage to file it !!
Ajma jhassra kemm hawn hies bla kuxxensa !
Jeremy Cassar Torregiani
Jun 20th 2012, 12:55
Kevin Zammit
So, first of all Judge Jury and executioner are your words not mine - if they were mine I would have left out the executioner as the saying is judge and jury but you have added it perhaps to sound more dramatic !
Secondly name me one other business in Malta that was taken over by an act of parliament as I don't know of any and in the same breath let me know of any that after the act was passed and the business removed from them, recovered and rebuilt it as you suggest.
Please however for once answer the questions before jumping off onto another tangent because you are unable to do so.
Business risk in one thing and we are well aware of it. Acts of parliament to mis-appropriate them is another and any tax payer who is in business can appreciate the difference.
Corinne Vella
Jun 20th 2012, 12:42
@ Kevin Zammit
It is never a good idea to assume that everyone shares one’s value system, Mr Zammit. Mine clearly differs from yours. You fail to see that even as you prove it over and over again.
Securing your children’s future is a noble cause. It does not have to happen at the cost of rewriting history for what you believe is your personal gain. Here are some facts that you overlook.
. “The real situation of the NBM was not then known to government” – Edgar Mizzi, Attorney General to Mintoff’s government in 1973, writing in this newspaper in 1995. So much for the current claims that the NBM's insolvency was Mintoff's motivation.
. On 10th December 1973 , Central Bank governor Earland described the closure of the NBM as inconceivable: 1986 sworn testimony of Henry Micallef, NBM general manager in 1973. This was corroborated by the sworn testimony of Antoine Tagliaferro, former NBM assistant general manager: “Mr Earland was greatly surprised that the bank would have to close down, because he said this would be greatly detrimental to the bank.” Mintoff closed the NBM on 13 December 1973
. Mintoff prevented CBM officials from participating in discussions at the 10 December meeting. 1986 sworn testimony of Henry Micallef, NBM general manager in 1973: “The exact words the prime minister used were: ‘Give it to me, give it to me, as this is the people’s money’. He meant of course that we had to give him the bank...Mr Earland said ‘it was inconceivable’ to close down the National Bank of Malta. Mintoff turned on him and told him: ‘Is this the kind of advice you are giving?’ From that moment on Earland took no further part in the discussion. Afterwards Mr Degabriele said: ‘we, that is the Central Bank, are the bank of last resort.’ This appeared to mean that the Central Bank would advance us the cash. Mintoff stopped him at once and nobody else took part in the discussion.”
. Mintoff did not only threaten to lift shareholders limited liability. He also threatened that he would not prevent the ransacking of shareholders’ homes, clearly an illegal act in itself. Sworn testimony of Edgar Montanaro Gauci, LP, former NBM general manager, referring to exchanges between Mintoff and NBM directors: “[Mintoff] continued to say that he wanted to remind the shareholders that they had to live in Malta. And if the bank went bankrupt he would do nothing to stop depositors from going to the homes of directors and shareholders and carrying off whatever they could find to make good for their deposits. This was a serious threat and the prospect was not to be taken lightly, inasmuch as during the crisis of 1958 there were troubles and violence. The same prime minister [Mintoff] had refused to assume responsibility for upholding law and order, so much so that the Governor had to intervene.”
Jeremy Cassar Torregiani
Jun 19th 2012, 23:30
Kevin the Natioonal Bnak of Malta was taken for a ride by both sides of the house. After creating an institution that worked hard to establish Malta's independent economy they were betrayed by the politicians that had employed the use of private funds towards the growth of the Malte economy.
We have waited in court for 38 yrs and can continue to wait for another 100 but it won't change anything.
Government has the duty to see to it that justice is served and not the individual.
The only judge, jury and executioner so far has been the government that appropriated a business that belonged to other people on the basis that it was in the National interest. Ma nafx minn qed jghamiliha Ta judge and jury.
We had the business and have waited for 38 yrs. The government passed the law in 48 hrs.
We never broke the laws. The government did. We went to court not government. We wait patiently the government did not. So say what you like but realize what you accuse me of is something you condone as long as it is the Labour Party. The fact that the Nationalists aided and abetted in the crime is to their shame also and they know it. In fact so did Toni Abela say so on Xarabank when I made this point on National Television last month !!
My allegations unlike yours are based on fact and solid argument. Instead of replying to them you choose to pass personal remarks to avoid the truth.
Anyway keep ignoring the truth and defending the theft and we will continue to wait.
Mr Kevin Zammit
Jun 20th 2012, 11:03
Judge Jury and executioner sir .. your statements are too authoritarian for my taste. They are not dignified with an answer any more.
As I said to you in my last comment on the other similar article you do not even want to agree that we disagree let alone hear anyone else.
A lot of people had businesses ... lost them ... and some even rebuilt them twice over. Your family is no exception ... that is business and the risks that come with it.
I as taxpayer do not want to pay for your risks.
Jeremy Cassar Torregiani
Jun 19th 2012, 12:01
@ Kevin Zammit
- our rights and freedoms should be protected irrespective of our political leanings . This is the whole idea behind the rule of law and our constitution. Its about time you realised that both political parties played a part in this vindictive act and that just because they both agreed to it it does not make it right.
The government ( both red and blue) has pocked more then 700 million from the theft. Nobody is asking for a hand out. On the contrary we are expecting the Nation to stand on its own feet without having to steal from its law abiding citizens to deliver on a vote catching agenda that rewards votes for handouts.
As far as I am concerned I am much happier with a court decision although this will cost the tax payer much more as it will have to return the bank to its rightful owners.
On the other hand, passing a judgement that exonerates government will open the case before an impartial court and will apart from embarrassing Malta internationally will open the door to further expropriations making even your hard earned savings a possible target.
Of course we could end up with another example of the rent laws where there is a selective prejudice against the old families in favour of the new but that's not right either.
Still, there is such a thing as natural justice. The same betrayal that attacked the shareholders who had the courage to invest in Malta as an independent economy ousted the labour party from government and is now doing the same to the Nationalists. Only yesterday further betrayals within the Nationalist party removed RCC.
By loosing the moral standards in parliament the whole island is worse off. First the Labour party and now the nationalists. Loyalty is a virtue and it is the backbone of a cohesive society.
In the end the tax payer will not benefit from theft even if in the short run people like Kevin think they are better for it.
Mr Kevin Zammit
Jun 19th 2012, 13:58
@JCT
We've been through this already and not just with me. Its very arrogant to make statements such as "The government ( both red and blue) has pocked more then 700 million from the theft"
Judge, jury and executioner ... thats it an no matter what anyone else says you keep making such statements because you feel joe public should pay you X sum of money.
"As far as I am concerned I am much happier with a court decision although this will cost the tax payer much more as it will have to return the bank to its rightful owners."
Again ... judge, jury and executioner.
How can you really keep strutting around making such claims? What you're saying is no matter what everyone else is wrong and you are right. In short even if you get your day in court and you loose you will say there was some political agenda that influenced the judges of course!
Just admit you were taken for a ride by Eddie & Co. and leave it at that.
Mr Kevin Zammit
Jun 18th 2012, 23:34
@Corinne Vella
We seem to share the same sort of immunity then ... except that my only personal interest is that which forms part of the national agenda i.e. how OUR tax money is used and yours is pocketing that tax money.
and please all do visit this link ... I'm not the only one who has been trying to ensure that politicians understand there are people who are quite upset at the way this whole mess of their own making is being handled. Public money must not keep being wasted in this manner.
http://www.timesofmalta.com/articles/view/20120529/local/Out-of-court-talks-on-National-Bank.421760
Corinne Vella
Jun 19th 2012, 10:43
@Kevin Zammit
I have said this before but it bears repeating. While you constantly and repeatedly raise the issue of money, I have not, except in response to your frivolous accusations.
I base my opinions on facts. You base your facts on your opinions.
There are concerns in this matter that cannot be measured by money. These concerns matter to me. It is clear that to you, they do not.
Mr Kevin Zammit
Jun 19th 2012, 11:58
@Corinne ... vague as always with your 'facts' but clear about your 'rights'
I'm not the only person who has already established your personal interest in this matter and its all in the end about compensation ... unjust compensation in my opinion based on my arguments and just in your opinion based on your arguments. Fact remains .. no impartial judge has been given an opportunity to establish legally once and for all ... but what do you care eh? 'X titmellah minn min ihallas it taxxa hux' ?
Corinne Vella
Jun 19th 2012, 13:09
@ Kevin Zammit
There is no vagueness about the facts I have cited. You offer no evidence to support yours.
You have NOT established my personal interest in this matter. You are concerned about money. I am concerned about setting the record straight.
As I have alread said, some things cannot be measured in financial terms. I’ll add that such a concept is alien to someone of your mindset, who argues for ‘justice’ on the basis of depriving others of their rights.
Mr Kevin Zammit
Jun 20th 2012, 11:07
@Corinne Vella
Your justice is to deprive a decent future for my children by increasing public debt. Set the record straight my foot. No one spends so much effort for no financial gain.
I admitted mine ... mindful of how the tax payer is being abused by this government yes. That is a concern of mine. The acceleration in national debt ... yes that is definitely a concern of mine and I am sure everyone else's in Europe let alone Malta!
Mr Kevin Zammit
Jun 18th 2012, 23:29
@JCT
I was wondering when you're going to take another opportunity at trying to sway public opinion in your favor for free.
We've been through this already so I'm not going to do like what you did and act as if this is your first post.
I'll just highlight the main points only:
1. I don't want my tax money to go to people that pretend rights without going to court. i.e. act as if there is no law that can judge them and act as judges. Go to court ... that's what you were promised by the nationalist party. Its not my fault it did not happen ... clearly you had no case or I'm sure the nationalist party would have done its best to see it through ... or it was not in their interest and therefore behaved like Mintoff did with you which makes it either twice wrong ... or maybe twice right? In any case without an impartial judge its all wasted energy and wasted breath on your part as far as I the tax payer am concerned.
2. I don't want my tax money to be wasted on you simply because the nationalist party used you to gain votes then threw you away. since they are the ones that promised you justice and did not deliver then you should be chasing after Eddie and Gonzi for what they promised or let them pay up out of their own pocket. Why should it be me as tax payer to have to foot the bill in that case?
Jeremy Cassar Torregiani
Jun 18th 2012, 15:49
The article above is based on the interview that Consiglio was asked to give during the DISSETT debate that I held with Alfred Mifsud who tried to defend the decision of the central bank not to lend as it was legally bound to do on the basis that it felt that the bank was at the time, insolvent.
Although I tried to explain during the said interview the facts relating to the solvency of the NBM, as witnessed by all, I was not easily allowed to make the necessary points. I have therefore decided to pen them here in an attempt to clarify what is otherwise a misleading representation of the facts by those that choose for reasons of their own to defend the takeover.
To start with, the reader must bear in mind that the Central bank unlike what some people who like to defend the forceful takeover like to imply, did have the obligation to act as the lender of last resort. This was not some loose agreement that might or might not have been respected. This obligation was crystallised in the laws of Malta through The Central Bank of Malta Act (Cap. 204)Act XXXI of 1967.
To be more specific as there are those amoung us who make this point debatable, I am quoting from the statute of the Central Bank of Malta that specifically spells out this obligation:
Fil-qadi ta’ dan l-obbligu statutorju, il-Bank jikkontribwixxi wkollgħall-istabbiltà finanzjarja fiż-żona. Il-Bank Ċentrali ta’ Malta hu responsabbli wkoll biex jipprovdi finanzjament lis-settur bankarjupermezz tal-funzjoni tiegħu bħala lender of last resort
Dan is-self normalment jingħataf’ċirkostanzi eċċezzjonali meta jinħass li l-istabbiltà tas-sistema finanzjarja tkun mhedda.
So anyone who implies that this was not the case is wilfully misleading the public and in so doing is already distorting the truth. The point therefore made on the matter in this article is therefore untrue as it makes it seem that this obligation was optional when this obligation was crystallised in black and white for all to see. So much so that it formed part of the laws of Malta and nowhere was this optional duty presented. The Central Bank of Malta act was there to regulate to activity of the banks according to government policy and in turn it was to provide the banks with the necessary stability to deal with exceptional scenarios. As far as the private banks were concerned this was the private / public partnership to stimulate the independent economy towards growth and self sufficiency in the Independant Republic we had recently acquired.
Having said this, once the National Bank directors after having struggled to comply with all the new demands being placed on it as pointed out in the article by virtue of the introduction of these measures only a few years earlier, needed government to come forward with its end of the bargain to deal with the emergency caused by the run, the government turned on its own citizens who had acted in goodfaith and according to all the laws in place at the time and enacted to take over their positions as the owners of the eneterprise for nothing.
I would therefore like to conclude this first point by making a clear and undeniable statement. The Central bank of Malta had the obligation to lend as a last resort and by abdicating from it the Central Bank of Malta betrayed itself and National Bank of Malta to the detriment of its shareholders. In so doing the government acquired a prosperous business for free and established the Bank of Valletta.
So, having established this obligation as a fact, my next point is to do with an analysis of its solvency. Up until the run, the National bank was experiencing record results. In so far as it was concerned, 1972 was its best year to date and 1973 would have been even better had it not been cut short through the act as passed by parliament.
Yet merely creating record results does not mean that the bank was necessarily better off. The reason for this is quite simple. If a bank lends irresponsibly, that is to businesses that may not ever be able to repay their debts notwithstanding any guarantees in place, then even though its short term results would improve its long term position would be worse as the loans that were initially generating good income would erode the bank should they suddenly turn bad.
As a result, the National Bank of Malta could only have been considered to be in weak position if a number of its customers – namely the larger ones stopped paying back as contemplated. Although this issue was never brought up in December of 1973, the subsequent battle over value was based on this principle.
In fact as mentioned in earlier discussions, the issue depends on the whole balance sheet of the bank and not on any one factor. More importantly, the balance sheet has to be taken at the point in time when the bank was determined to be insolvent.
Although the article above implies that the decision was taken in December 1973 on the basis of the information that the Central Bank had, no mention of this was ever made at the time. As a result the contents of this report could never have been disputed as by keeping it secret, the discussion never took place.
What we do know for a fact is that once the government had in effect taken over, the auditors were replaced and based on the information supplied to them from the central bank itself the following pivotal adjustments to the accounts were made:
First of all long term securities held by the bank in both local and foreign government stock were sold prematurely to provide the NBM with immediate liquidity. This early encashment of these assets led to a loss of 629,000 Malta Liri which in turn were depleted from the balance sheet of the National Bank of Malta shareholders. Had the Central Bank provided the liquidity as contemplated in the law, these losses would never had been sustained and since it was the government and not the NBM that took this decision after having seized control they can by no means be used by government to show the position of the Bank as at December 1973. If for nothing else for the simple reason that at that point in time these securities were still held by the NBM before having been sold off after the takeover ie between December 1973 AND March 1974.
The second adjustment which was fundamental to the changes in the balance sheet was an increase of the provisions on bad and doubtful debts to 300% of its previous value. As pointed out in the debate, the provisions as at December 1972 stood at 2 million Maltese Liri. After the government took over these were increased to 6 million Malta Liri on the assumption that local business would not be able to repay the loans given to them by the NBM. Bear in mind that up until that time most loans were being repaid and there was no alarm that businesses in Malta were failing. Although there is little more than a 2 pg report to back this decision up, the assumption was made on the hypothesis that property in Malta had fallen by 36.6% and as a result businesses that had up until that time always been in position to service their loans would be unable to continue to meet future demands. While one would quickly argue that such an assumption should never have been made, today with the benefit of hindsight we can see exactly how untrue it was. On review, the BOV confirmed that 80% of the provisions were collected and that in fact these businesses had repaid as contemplated. In so doing the BOV itself therefore reconfirmed the position held by the NBM that the provision which stood at 2 million was sufficient to cover any eventual shortfall.
Thirdly, although deemed to have made a loss in the year 1973, a tax on its operation of 216,000 Malta Liri was paid on its operating profits. As mentioned earlier, the NBM was experiencing its record results up until the government takeover. As a result had these adjustment never been made, it would have made 616,000 Malta Liri in profit and its tax liability would have been of circa 216,000 Liri. The accounts presented by the council of administration reduced the tax due as if profits were made while in the same breath, created a false position that implied that a loss of circa 3 million liri had been sustain in 1973.
Another adjustment made was a subsequent devaluation of all property assets held by the NBM ltd by 40%. Although not a major loss, this reduction was wrong as property values were left at cost price and even if property allegedly fell by 40% between 1969 and 1973 the book values need not have been devalued accordingly. By doing so the government further distorted the correct value of the properties and as a result act maliciously to the shareholders detriment.
To conclude one must therefore look at the facts to see whether or not the Bank was solvent or not. Had these adjustments not been made the answer is an undeniable yes. If these adjustments were made to distort the truth and make it appear that it was insolvent then the answer is no. My position is that the bank was solvent at the time of the run as up till then these adjustments were not made and therefore nobody could conclude that the bank was weak.
After the run and the act of parliament it is clear that they were made however in my view they were made to make the bank appear insolvent so as to justify the takeover and not because they had any plausible reasons for doing so.
Mr Karl Ciarlo'
Jun 18th 2012, 09:00
Three banks, two failures, two takeovers and one closed down. During the same period of time. Doesn't that mean something? One is usually guarded about one's actions when these are not prim and proper.
cesco di luigi
Jun 17th 2012, 19:22
The shareholders (or theor hirs0 say that they were threatened that Mintoff would amend the law so that they would be personally liable.
I do not see this as a threat at all beacuse as far as I know Government can amend laws if passed in parliament.
Secondly if the bank was so solid as the shareholders claim why were they afraid of personal liability if they would eventually have been able to recoup the funds from the bank's assets, which after all according to them were so vast????
B. Cachia
Jun 18th 2012, 00:23
Essentially, because a bank, even the strongest, most profitable and best capitalised, is always at the mercy of its regulator and will always make huge losses if the regulator allows a bank run to take place or even encourages it, as was the case with NBM. As banks, by their very nature, are highly leveraged, such lossees could easily exceed the bank's capital. In such a scenario, it would be insanity to accept exposure to such (potential, or even certain) losses without the protection of limited liability.
Regarding the assets, they have little to do with issues of liquidity. A bank cannot call in its loans quickly enough to cover the withdrawals it would be facing during a bank run. This is in the very nature of banking as a business, it has nothing to do with the National Bank specifically. No bank of any shape or description could withstand a bank run, which is why today we have deposit insurance and central banks that act as lender of last resort.
Carmel camilleri
Jun 17th 2012, 17:09
If the Bank was not strong why is it that it registered profits only after a couple of yrs. The Bank needed a loan to overcome its liquidity problem which was purosely blown out by Mintoff. In just a short time it would have paid the money back to the Govt with interest. But this was the way that Mintoff wanted things to happen. He just siezed upon the opportunity to grab the bank to tighten his control on the financial sector along with th rest of the economy.
Adrian P. Cassar
Jun 17th 2012, 18:02
Did Lehman bank report profit before collapsing Carmel?
Adrian P. Cassar
Jun 17th 2012, 18:09
4.2billion dollars. That is USD 4200000000 profit of Lehman Brothers....the year BEFORE bankruptcy!!
I don't know if NBM was solvent or not, because just like you I am not a banking expert and have no access to the bank's files.
But unlike you I don't jump to conclusions based on politics and puerile arguments.
D. Caruana
Jun 18th 2012, 06:38
I will reply from an analyst perspective - making profits does not mean you have the liquidity to actually continue operations. If your survival relies heavily on a loan that is required to continue the day-to-day operations, those are dangerous signs of liquidity, perhaps solvency issues, which need to be taken into consideration when looking at banks.
EG - most banks rely on deposits as a source of funding to their loans. But if deposits fail to meet these business requirement, then it could be the case that the bank might need to borrow in order to sustain its loans (which are usually of a longer term than deposits). In doing so, the profit margins of banks are narrower (deposits are far less expensive than borrowings), and the bank will need to ensure repayment of loans and interest which put pressures on operations.
So by just looking at profitability, that doesn't necessarily translate in liquid funds for operations, and you might be judging a "book by its cover" if you go to that direction, rather than seeing the picture as a whole.
B. Cachia
Jun 18th 2012, 13:49
Adrian, Lehman Brothers was not a basic community bank like NBM, it was an investment bank with an immensely complex balance sheet, including derivative positions that the management itself did not understand fully. NBM was a small retail bank whose assets consisted primarily of mortgage loans, business loans and bonds. That sort of balance sheet does not explode overnight.
Mr Kevin Zammit
Jun 17th 2012, 16:25
@B.Cachia
There's been a whole back and forth about this. Even now by today's standards it is questionable on whether a government should step in and bail out a private enterprise let alone back in a time when socialism had a strong hold and the government was not so financially strong given the small size of the Maltese economy.
Let us assume that Mintoff did press the CBM to put tens of millions of tax payers money the government did not have ... only way to do that would have been for the Maltese government to borrow ... a government that had only been independent for how long 10 - 15 years! And for what? A risky business based on the assumptions made of real estate values. None of it makes any sense now let alone back then.
Would it not have been ironic if the Nationalist Party of the time then lambasted Mintoff for using public funds in such a manner?
B. Cachia
Jun 18th 2012, 00:05
There was no such hole of tens of millions, there was merely a liquidity issue. As you know, the bank exists to this day (under different ownership, of course) and has been always been profitable. Had there been the huge hole in the National Bank's balance sheet that you are suggesting, BOV would have gone out of business within a few years or would have required a major recapitalisation that would have had to come from the Government or from foreign investors. Instead, BOV was profitable from day one and remains so to this day.
Mr Kevin Zammit
Jun 18th 2012, 11:04
@B. Cachia
Sorry but you're not making sense. If there was no hole then how come the bank needed financial assistance through the central bank by acting as lender of last resort? As for BOV of course it was recapitalised and restructured and since the government (incl Mintoff who was very popular at the time) lent its name to the bank guaranteeing all deposits obviously all depositors calmed down overnight and everything kept going smoothly.
As well dont forget that 1 million in 77 would be equivalent to something like 100 by todays money not only because of inflation but also due to the increase in the country's GDP which at the time had boomed thanks mainly to the then labour administration that experienced even 2 digit growth rates not seen since. Borrowing against a GDP of 1 billion is one thing but 5 billion is obviously another.
While not all that happened during Mintoff's administration was good neither was it all bad. History is not there for people to blab away and spin. Decisions were taken and some people got hurt for the benefit of others ... no more so than the present administration that used those same shareholders for their own end and the story goes.
B. Cachia
Jun 18th 2012, 13:44
It's very simple Kevin, there's a big difference between liquidity and solvency. This is elementary accounting. Liquidity means the ability to pay short term debts, solvency is the ability to pay long term debts. One may be able to easily pay back one's debts but not have the cash to do so immediately. Essentially, a bank will always be in this situation when faced with a run. But these are basic things, you can find them on basic textbooks or possibly even on wikipedia. This is not the place to provide you with a basic understanding of accounting and banking.
Corinne Vella
Jun 18th 2012, 18:21
@ B Cachia
Kevin Zammit is immune to facts. He prefers to rely on his own uninformed conclusions:
http://www.timesofmalta.com/articles/view/20120529/local/Out-of-court-talks-on-National-Bank.421760
T.F. Busuttil
Jun 17th 2012, 14:52
@B.Cachia
intervene you mean the central bank bail out the bank from the tax payer's money like whats is happening in Europe. First the you spend, spend and spend and than you excpect the Central Bank to Bail you out. u hallina.
B. Cachia
Jun 17th 2012, 23:55
@ T.F. Busuttil: No, 'intervene' means 'provide temporary liquidity' as a loan, usually at a very high interest rate. Banks should not be getting themselves into situations of illiquidity and therefore central banks typically charge punitive rates when they provide liquidity in this way, in order to avoid moral hazard. Actual donations to banks, as you seem to suggest, are very rarely done, in fact I can recall of no cases where that has actually happened.
Anthony Farrugia
Jun 17th 2012, 14:51
The picure above shows the Central Bank of Malta (Ex Vernon Club). The Head office of the National Bank of Malta was in Kingsway (Triq ir - Repubblika) opposite Kings Own Band Club).
B. Cachia
Jun 17th 2012, 11:46
Well, if the problem was merely one of liquidity, then that would have been a situation where the Central Bank would normally intervene (that's one of the reasons why the Central Bank exists - to make sure that solvent but illiquid banks can continue to operate). If the problem had been one relating to solvency (i.e. the bank had negative equity, to the point that it could not pay its long term debts), then the regulator should have taken things in hand long before that, and should have forced a recapitalisation or a merger. In any case, the ECB, and indeed the Government, had the responsibility to prevent, rather than encourage, a bank run. Not even the most liquid and solvent bank in the world can withstand a bank run, and to allow one to happen was a pure act of vandalism on the part of the authorities.
B. Cachia
Jun 17th 2012, 13:24
Of course, I should have said 'CBM' and not 'ECB'
Saviour Sam Agius
Jun 17th 2012, 19:17
Wasn't the CBM set up after this event?
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