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