A long-standing bank saga
So much has been written lately on the issue of the National Bank of Malta (NBM) that I decided to research the subject.
The late Attorney General, Edgar Mizzi gives a thorough account of the events leading to its closure in his autobiography Malta In The Making. A few quotations from Dr Mizzi’s book are essential to shed some light on this long outstanding saga:
“The main problem with the NBM was its liquidity. It had developed and flourished at a time when there was no control over banks…
“Two other factors... affected the bank’s liquidity:
“(i)the catastrophic decrease in value of the undated three per cent war loan bonds...;
“(ii)when it took over Tagliaferro Bank (in 1969, the bank credited to have introduced merchant banking in Malta) it became saddled with immovable properties which, though valuable, were not quickly convertible into cash.
“…Following the enactment of the Banking Act in 1970, the Central Bank pressed the bank to increase its liquidity but with little success.”
According to Dr Mizzi, “in the balance sheet prepared by Deloitte & Co., only Lm4.119 million were in truly liquid form...: it was not proper for a bank to invest so heavily in advances and other accounts... It was said, at the time of the run on the bank, that a request had gone out to some of the bank’s debtors for an early repayment...”
The former Attorney General continues “that the rumours which eventually led to the run on the bank were started by something which should not have happened, may be read in the intervention (of) a Nationalist MP, and nephew of a substantial shareholder... Dr Mario Felice did not mention names but he gave strong indications that he knew of a ‘ridiculous and loathsome action’ (“azzjoni ridikola u skifuża”) which had brought about the catastrophe – parliamentary debates, December 12, 1973. Dr Felice has more recently confirmed that he knew what had caused the run, (declaring) that the government... had acted in a perfectly legal manner and the takeover of the bank could in no way be described as a hijack, “adding) that the shareholders had no case against the government and their demands should have been rejected by the courts years ago.
“…The government did, by statements in Parliament on December 10 and 11, 1973, intervene in an attempt to persuade depositors that they were being unreasonable and could only harm themselves by their behaviour but even (Dom) Mintoff failed to have any effect.
“...Mintoff (had) asked Louis Galea – ... a respected (banker)... – to advise and assist in the matter. But by December 12 it was clear that the bank had to close, in its own interest as well as in that of its depositors. Although by that date the liquid assets of the bank had not yet been exhausted, this was mainly due to the restraint on the part of the government with respect to a deposit of some Lm4 million appertaining to parastatal bodies and other government agencies...
“At the same time, closure... would have spelt disaster to many hotels and industries and it was the duty of the government to avoid that. Pumping in money was not the way to solve the problem: it could have meant throwing money down the drain.”
On the shareholders’ issue, I would not normally have delved into it as it is still subjudice but the fact that various comments by opinionists, writers and other Nationalist spin doctors have been made, I would simply quote Dr Mizzi who said:
“The government was prepared to risk public money to save depositors’ money and the businesses that depended on the bank but not that of the shareholders as well.
“This condition – which was undoubtedly made – was the cause of misunderstandings and even distortion of facts.
“…this so-called warning (it was not even a warning; at worst it was a recommendation) was turned into a threat that the government would change the law and make the shareholders responsible for what had happened... since I was present for practically the whole time spent by Mintoff with the bank’s directors, I can vouch that no such threat was ever made.
“…Another issue... still being debated, is whether it was correct to say that the shares in the bank had lost all their value... this question was considered... by... the Second Hall of the Civil Court” because a substantial transferor needed court authorisation.
“Before... (granting) authorisation..., the court... heard the evidence of Louis Galea,” another substantial shareholder, two board members “and myself. It was the unanimous opinion of all of us that, given the circumstances, the shares had lost all value.”
Even banking historian, John Consiglio, when interviewed by The Sunday Times said: “Please, let us all stop saying that the NBM was a strong bank. In banking, ‘strong’ is a word full of implications” (June 17).
And as Robert J. Schiller told this newspaper: “Beyond investment banks... modern finance has a public and governmental dimension… Setting the rules of the game for a robust, socially useful financial sector has never been more important” (May 28).
In view of the above, I would conclude that, on this matter, the film Dear Dom was, to say the least, very biased against former Premier Dom Mintoff.
Dr Sammut is a practising lawyer specialising mainly in banking, financial services, commercial, civil and property law
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Gerry Cowie
Jul 22nd 2012, 11:20
Party EP - the one man party - You clearly have not read what I said. You seem to make yourself the voice of the other party, PL. You always write as if you represent them! But your opinion is yours alone!
Why did PL never put right the wrongs?
Clearly as your one man party is a PL supporter you are not going to agree with me, so we have to accept that!
Being eminent does not make the man!
And were the boot on the other foot you would be fighting tooth and nail for justice!
This is about the government finally putting right the wrongs of your beloved PL.
The shareholders will have a victory because they deserve one, pure and simple, and there is nothing you can do to stop it!
Gerry Cowie
Jul 21st 2012, 20:55
It is strange how many Mintoff supporters are coming out of the woodwork and suggesting things such as this is a vote winner for PN etc etc. It was PL which of course caused this whole thing at the time and they are as ever anxious to defend and praise their architect for everything he ever did as if he were some kind of saint. Were the boot on the other foot, we all know which way they would swing! Ah! Politics! And in particular Maltese politics!
Eddy Privitera
Jul 22nd 2012, 10:05
Gerry Cowie: You seem to know more than Dr. Ivan Sammut, who quoted what was written by such an eminent person as Dr. Edgar Mizzi and other prominent protagonists in the National Bank saga at the time !
If what was done then was wrong, why have all PN governments since then, not done anything to correct what had been done ? And why is Dr. Gonzi only NOW, on the eve of a general election, seemingly trying to do something in order to garner a few votes of shareholders, while possibly irrutating many more, who have much stronger claims for compensation from the government, such as those who were made to pay VAT on the registration of their new car , and possibly many others to whom the government still owes a lot of money ??
Corinne Vella
Jul 23rd 2012, 10:24
@ Eddie Privitera
If you wish to rely on a single source, take note of what that same source said in an article published in the Times of 5th February 1995.
Edgar Mizzi said of the National Bank in 1973 that “the real situation of the bank was not then known to government” and that “there was not even the material time for such a procedure”, i.e., a declaration of bankruptcy by the court.
In Mintoff's Attorney General's words, then, Mintoff's government acted groundlessly and in bad faith.
Elvin Muscat
Jul 21st 2012, 20:29
You basically took the whole context out of proportion and based upon some assumptions, with Dr.Mizzi book as a clear and present bible of facts. Biggest mistake in law, if you're reading for a degree this way I would surely consider you for a retake.
Read much more, and go to the courts archives, Central Bank of Malta archives, search and search, one book is surely not going to cut it, you offend the legal system.
Gerry Cowie
Jul 21st 2012, 16:35
@Anthony Pavia - would your opinion be the slightest bit different were you a wronged NBM shareholder?
Carnel Camilleri hits the nail on the head perfectly. The whole thing appears to have been stage managed from start to finish.
Corinne Vella
Jul 21st 2012, 18:14
Of course it was:
http://www.scribd.com/doc/94559926/Law-Report-Director-Testifies-on-Events-Leading-to-Run-on-National-Bank-tomarchive-19801022-002
ANTHONY PAVIA
Jul 22nd 2012, 11:59
Fortunately I am not in that position and I will not speculate.
Carmel camilleri
Jul 21st 2012, 15:23
All this must be taken with a pinch of salt knowing that Dr. Edgar Mizzi was an actor in the whole drama. Miraculously this defaulted bank made millions of M. liri just two yrs later.
ANTHONY PAVIA
Jul 21st 2012, 17:03
Yes banks may go bankrupt at a moment in time, and make profits a year or two later, AFTER they are rescued and put on a sound footing. May I refer you to the recent banking/financial crisis in the USA for many examples.
Corinne Vella
Jul 21st 2012, 18:11
@Anthony Pavia
I don't doubt your sincerity or passion, but they are a poor substitute for information and logic.
The National Bank wasn't rescued. It was taken over. Its derivative did not make a profit a year or two later. It declared a profit in its first year of operation.
A community bank like the National Bank is of a wholly different character to the US institutions you mention.
B. Cachia
Jul 21st 2012, 19:52
Anthony, there's no way insolvent banks can suddenly return to profits, unless they're completely recapitalised, which NBM/BOV was not. None of the banks in the US that were truly insolvent returned to profits without recapitalisation. Some banks that were solvent but had run into liquidity issues, like Goldman Sachs, JP Morgan etc. were provided with liquidity via TARP but were not recapitalised and quickly returned to profitability. Insolvent banks like Lehman just died. Other banks that were close to insolvency, like Citi, were recapitalised but are still working through their bad assets, and make hardly any profits at all, even today, about four years after the crisis began.
ANTHONY PAVIA
Jul 22nd 2012, 11:57
Ms Vella and Mr Cachia, you have forgotten that there was a run on this particular bank. Not on the other then existing banks, which is a very important point to note. Had the run ballooned, depositors monies would certainly have been lost (vide Bical). Not to mention the great harm to the economy when an overextended financial part, without any funds, is suddenly withdrawn from the equation .
B. Cachia
Jul 21st 2012, 14:47
This article does not seem to contribute anything new. That the bank had liquidity problems is a known fact. Usually what happens when a bank has liquidity issues but is solvent is that it gets temporary (and expensive) liquidity from the regulator. The regulator does this in the interest of the health and credibility of the financial system and the economy, not as a favour. The regulator also makes money out of its intervention, although that is not the primary objective. What happened in Malta was that the government took the opportunity to nationalise the bank. Later on it also nationalised Barclays (although in that case it did give the shareholders a nominal compensation) even though the bank was doing well.
Corinne Vella
Jul 21st 2012, 13:52
In an article published in the Times of 5th February 1995, Edgar Mizzi said of the National Bank in 1973 that “the real situation of the bank was not then known to government” and that “there was not even the material time for such a procedure”, i.e., a declaration of bankruptcy by the court.
In Mintoff's Attorney General's words, then, Mintoff's government acted groundlessly and in bad faith.
Mr Ronald Micallef
Jul 21st 2012, 12:39
1. Mintoff at the time threatened to withdraw £M4 million of deposits by parastatal bodies, charming prime minister that he was.
2. The Central Bank failed to act as lender of last resort. This would have stemmed the flow immediately.
3. The government could have offered to purchase shares equivalent to 51% of the total thus injecting liquidity and retaining control of the bank.
4. The Labour government robbed shareholders of their assets.
Gerry Cowie
Jul 21st 2012, 11:59
Interesting to note that Dr Mizzi was "present for practically the whole time....". To the man in the street this would suggest that he was therefore not present for the whole time. What does "practically" mean in this case?
I would say that Jeremy Cassar Torregiani has led the way admirably for the shareholders of the National Bank and has spoken with knowledge and authority despite attempts by those who favoured Mintoff's administration to denounce what he has said. Hence it is admirable that Dr Gonzi has given recognition to what is indeed the moral status of the shareholders.
It is hardly surprising that "Dear Dom" should cover this thorny problem and reflect the situation concerning the government of the day. Of course pro-Mintoffians who cannot or will not see anything wrong with the actions of the administration in general, let alone on this issue, will never agree with an outcome which favours those who were wronged by having their shares take from them.
To Anthony Pavia, I would say that morality is a thing for all of us to abide by and not just charities or philanthropists. Since when has exercising morality been denied to government respresentatives?
ANTHONY PAVIA
Jul 21st 2012, 13:10
Government representatives may invoke morals as much as they desire; no one is stopping them, but only when they use their own money. It is so easy being charitable and philanthropic with others' cash.
Corinne Vella
Jul 21st 2012, 18:01
Charity and philanthropy are not factors in this case, Mr Pavia. You are talking about the forced takeover of a bank, not the outgoings of the Community Chest Fund.
ANTHONY PAVIA
Jul 22nd 2012, 11:47
Ms Vella, the courts are still waiting for documented evidence of a forced takeover. Perhaps you would care to supply.
Corinne Vella
Jul 22nd 2012, 18:43
The courts? Not quite. Here's some of the evidence you need, courtesy of the courts, including the testimony of a judge, now deceased:
http://www.scribd.com/doc/97779820/Judge-Montanaro-Gauci-Mintoff-blocked-loans-by-commercial-banks
http://www.scribd.com/doc/97557871/1973-CBM-governor-Earland-says-NBM-closure-inconceivable
http://www.scribd.com/doc/97597302/Testimony-of-Antoine-Tagliaferro-ex-assistant-general-manager-NBM
http://www.scribd.com/doc/97598114/Testimony-of-Mr-Antoine-Bianchi-NBM-employee-and-shareholder
http://www.scribd.com/doc/97599281/Testimony-of-Edgar-Montanaro-Gauci-former-general-manager-NBM
ANTHONY PAVIA
Jul 23rd 2012, 11:49
Documented evidence of proved forced completion of contracts not here-say, which is completely different.
ANTHONY PAVIA
Jul 21st 2012, 11:00
All over the developed world, legalities deal with and govern money disputes. Morality should be left to charities or philanthropists, certainly not Government representatives.
B. Cachia
Jul 21st 2012, 15:36
I don't see why government representatives should not act morally. In fact, I believe they are expected to do so. If by 'morality' you mean 'philanthropy', then no philanthropy was needed in this case, merely the normal exercise of the Central Bank's role as lender of last resort.
ANTHONY PAVIA
Jul 21st 2012, 16:58
The notion of the CBM's "lender of last resort" and its applicability when required, was amply explained ad nauseum by respected economists Alfred Mifsud and John Consiglio . Government is not at liberty to subsidise private business losses out of taxpayers monies as would be the case here. Taxpayers have subsidised enough failing and failed enterprises, and all carried out for political points. Business disputes, as this seems to be, are settled in courts of law and not as an election hand out.
Corinne Vella
Jul 21st 2012, 18:00
@Anthony Pavia
The forced, illicit and immoral takeover of private enterprise is not a 'business dispute', no one in this case is asking for 'subsidies for private business', and you are clearly in need of an explanation of the true meaning of business risk.
B. Cachia
Jul 21st 2012, 19:42
Anthony, the existence of a 'lender of last resort' is always an implied subsidy to all banks and financial institutions, although in most cases the subsidy is not paid in the form of an actual grant but rather in allowing banks to lend more, at the cost of greater volatility in the quantity of money. Collectively, over the long term, the banks do not make any additional money out of it, because the 'subsidy' attracts more capital to banking and reduces returns. Today we (like everyone else) also have deposit insurance, which is an even more explicit commitment, and once again, the banks do not make money out of it in the long run. If one wants to have a functioning fractional reserve banking system one requires these structures. Most importantly, the system cannot selectively fail to operate at the whim of the government.
Incidentally, the kind of banking system that would fit in with your concept of a complete absence of state backing would have to be a 100% reserve system, with people having to pay for the bank to warehouse their money. Such a system has not existed anywhere that I know of in modern times.
ANTHONY PAVIA
Jul 22nd 2012, 11:45
Ms Vella, you contend that all/many/some signed NBM share transfer documents were forceably completed. Perhaps you would care to produce documented proof. It seems the courts are still waiting as well. In case of default, I would consider your assertion a howler.
Perhaps you would also be kind enough to provide me with the definition of business risk. This might differ from mine and what is generally accepted.
Mr Cachia, as was evident in the western world's financial meltdown in 2007/8, no Government would be willing to risk taxpayers funds to recapitalise any bank's equity unless this same equity is transferred to it, as in fact had happened in the NBM case all those years back. Going round in circles gets one nowhere.
B. Cachia
Jul 22nd 2012, 16:29
Anthony, you appear not to be making the distinction between 'liquidity' and 'capital'. NBM did not need a recapitalisation, it merely needed temporary liquidity (i.e. a short-term loan at high interest), which sometimes happens to banks. Had it been insolvent it would have needed capital, and in that case the Government would have had the choice of providing that in the form of ordinary shares, preference shares or warrants, depending on the government's policy and on what the regulators consider to be 'capital' in that time and place.
More generally, I consider myself to be a floating voter (and by the way I have no personal interest in NBM) but I consider the protection of private property to be a fundamental principle. I notice that sometimes, Labour's well-meaning supporters do it great harm by adopting the uncompromising, hard-headed, "Labour is always right, and has always been right" attittude that has always scared the middle class and made it vote repeatedly for the Nationalist Party, whether it likes it or not.
ANTHONY PAVIA
Jul 22nd 2012, 18:21
Mr Cachia, I have noted the distinction between "illiquid", "insolvent" as well as "negative equity".
Who would be considered prudent, as Governments must, and lent good money to chase bad, at whatever rate of high-risked potential return. Why did the ex-shareholders not fund, in real time, any liquidity deficiency out of their own resources. Wasn't the turning point the withdrawal of their prized limited liability, used and/or abused as convenient? Who would not enjoy playing with other people's monies at little or no risk to his own?
Simply put, the ex shareholders did not want to risk any further of their own monies via the withdrawal of their limited liability. They wanted relatively cheap Government funds to quell their depositors rebellion, which seemed to be riotous at times. Their elected directors had naively and unwittingly manoeuvred their bank into this precarious position over the many years of imprudent loan making, as evidenced by professional CBM and attached Barclays personnel. The Government and the CBM were simply not playing ball. Of course, the burst bubble running riot the real estate market was a very strong trigger to events, and more so to valuations of both bank owned and more importantly collateral, the latter vanishing into thin air in a forced sale scenario.
I look at this subject from a taxpayer's point of view. To me this subject is apolitical and should be settled in a court of law. Even then, any consideration awarded, if any, should be borne by the present shareholders of BOV, and not Government per se.
I would not care for any slant PN/PL apologists give the issue. The whole first sentence of your second paragraph describes me as well.
Corinne Vella
Jul 22nd 2012, 18:49
@Anthony Pavia
I don't know where you got the idea that the courts are still waiting for documented evidence. This report dates back to October 1980:
http://www.scribd.com/doc/94559926/Law-Report-Director-Testifies-on-Events-Leading-to-Run-on-National-Bank-tomarchive-19801022-002
Shareholders denied that they begged Mintoff to take over the bank:
http://www.scribd.com/doc/94843111/Shareholders-Deny-Begging-Government-to-Take-Over-Bank-STimes-15AUG76
http://www.scribd.com/doc/94843146/NBM-Shareholders-Deny-Begging-Government-to-Take-Over-Times-of-Malta-15-August-1976
Shareholders' recent declarations of a forced takeover:
http://www.scribd.com/doc/95067907/NBM-Shares-Signed-Away-Under-Duress-Malta-Today-28MAY2012
There's more, of course, but it would be instructive for you to do some research of your own before trumpeting declarations based on misinformation.
Corinne Vella
Jul 22nd 2012, 18:54
@ Anthony Pavia
Business risk is shaped by many factors, including government regulation and economic climate. Rogue action by government, in violation of the law, does not fit the definition of legitimate business risk.
I hope that is now clear.
Please choose the reason of your report below: