Few rights in life are absolute. Freedom of expression is subject to the laws of libel. The police must maintain order but cannot use excessive force. We all agree that the banks have a right to protect their customers’ confidentiality but even this has, or should have, its parameters.
Following the aftermath of the debacle of the Monte Dei Paschi Di Siena (MDPS), the directors of the bank were severely chastised for keeping the shareholders in the dark about the inspections and complaints raised by the Central Bank of Italy regarding the operations of certain bank customers.
Even Swiss banks had to divulge details (names and amounts) of their customers.
So much for confidentiality when matters come within the domain of the public interest.
Similarly, local banks should accept that their duty to protect the confidentiality of their customers is not absolute. The banks cannot always and in all cases invoke the confidentiality clause. The government guarantee to Bank of Valletta to facilitate the sanction of a loan to Electrogas, a private company, is a case in point.
Apparently, Electrogas did not have the means or assets to secure their loan. Nor were the shareholders prepared to do so themselves. Yet, the government, exceptionally but willingly, stepped in to resolve the Electrogas problem. In my opinion, this is tantamount to another form of bailout, this time of a private borrower by the government.
By the government’s own description, this guarantee is “unique” and so it is because this is the first time taxpayers’ money is being earmarked to guarantee a private company.
Moreover, the novelty of this arrangement is that, at the same time, it is a practical and quick way to create security and, therefore, finance. If it works, why cannot the government adopt it as a blueprint for future projects? Here, the amount involved is an unprecedented €88 million.
Is it surprising, therefore, that this whole arrangement raises a few questions?
The bank guarantee is tantamount to another form of bailout, this time of a private borrower by the government
On the other hand, the Minister of Finance has tried to assuage our doubts by stating that this is only a temporary guarantee. But how long is the term of this temporary guarantee? When will the bank release the guarantee? With what alternative security will it be replaced when released? Will the bank release it as soon as the agreement to supply Enemalta with electricity is signed? Does the bank consider this agreement as an acceptable security?
An identified source of income does not necessarily constitute realisable security for the simple reason that, as the bank’s directors must surely know, the bank cannot go to court or take other steps to turn the agreement into cash should Electrogas for any reason find itself in difficulties.
Has the bank agreed to release the government guarantee at that point in time when, although the agreement is signed, Electrogas would still have to start to repay its loan? Would this not mean that the bank (a commercial one) is prepared to allow possibly long-term facilities on an unsecured basis?
Were usual banking norms observed before sanctioning the loan? Did the government take (at least) counter indemnities from the borrower or the shareholders?
What is the position? We do not know. It would be interesting if we are provided with some answers.
There may be simple answers to these questions but the government and the bank have chosen to remain silent and hide behind the confidentiality veil even if this is not so fashionable these days as the Swiss banks could confirm.
Thus, we cannot know what the position is nor would, for that matter, the shareholders who own the bank.
Joe Pace Ross is a former senior bank executive.