Historian sees shades of grey in banking saga

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 !!

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.

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 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

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????

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.

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?

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.

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.