Shareholders of the National Bank of Malta are insisting the government should respect a court judgment rather than revert to its defeated argument that the bank was insolvent at the time of the takeover, The Business Observer, distributed with Times of Malta, reports.

The 350 shareholders are claiming €325 million in compensation and want the government to come up with a proper valuation of the bank.

In a case that has dragged on for 40 years, the court last year ruled that the 1973 government takeover of the bank breached their fundamental humans rights.

Can’t we claim that the issue of insolvency is dead and buried?

The judge did not come up with figures but asked the parties to come up with a value for the shares and damages.

However, the government is sticking to the argument that the bank was “illiquid and insolvent” and that it therefore does not owe a single cent.

Financial consultant Anthony Curmi, who did the valuation on behalf of the NBM shareholders, wrote an internal memo to the shareholders saying he could not understand why the government was still trying to wriggle out of paying compensation.

“The Constitutional Court decreed [even before submission of my report] that the shares had value and so compensation should have been paid by the government. Thus can’t we claim that the issue of insolvency is dead and buried?”

Mr Curmi’s report calculated that the bank was worth €61.4 million (adjusted for inflation) when it was taken over by the Labour government in 1973 after a run on the bank by depositors between December 6 and 10.

The value of NBM’s assets includes over €21.85 million for six properties, currently occupied by the BOV office in Republic Street, two in Marsa, one at the Strand and one at Victoria, and the Tagliaferro Business Centre.

The value of these properties was calculated by architect Godwin Abela in March 2015 and was based on current value as well as comparison with present retail and office rental rates. The NBM had 27 branches but only those it owned were taken into account.

Mr Curmi also calculated the amount that the government had subsequently earned from its shareholding in the bank that it created from the ashes of the NBM – Bank of Valletta. He took into account the dividends paid between 1974 and 2014, proceeds from the sale of shares to the public in 1995 and the market value of its shareholding it still has.

He did not take into account the sale of shares to Banco di Sicilia in 1974 and he adjusted the figure for the money that the government injected into BOV in 1973.

However, the government has submitted its own report, drawn up by Paolo Ugolini and Richard Nun, which insists that the NBM at the time of the takeover was “illiquid and insolvent” and that the amount being claimed was “unreasonable and in noway supported by factors or sound reasoning”.

The government’s experts also point out that Mr Curmi’s assessment of the government’s earnings through BOV were flawed.

“The calculations and alleged value derived by the government after its rescue of NBM are based on unrealistic and invalid assumptions and on the premise that if the shareholders, board of directors and managers of NBM had retained control of the bank they would have achieved the same level of profits as did BOV.

The bank failed; it was not sold to a willing buyer in an arm’s length transaction nor could it have been sold in its failing condition

“However, this fails to recognise that the success of BOV was due primarily to (i) the ownership of the government which restored public confidence in the bank by fully guaranteeing all deposits which NBM would have been unable to do; (ii) the infusion of new capital by the government; and (iii) the change in management which restored prudent banking practices and returned the bank to a safe and sound condition. Therefore, this claim is wholly without merit,” they wrote.

“The bank failed; it was not sold to a willing buyer in an arm’s length transaction nor could it have been sold in its failing condition. As for depriving the NBM shareholders of their long-standing banking business, neither the government nor the Central Bank prevented the NBM shareholders from using their own resources or soliciting new investors to save the bank, and since the shareholders were unable or unwilling to do so within the urgent time constraints of the imminent failure, the government had no choice but to intervene to protect the depositors and creditors and to ensure stability of the financial system. These claims have no merit whatsoever.”

Mr Curmi said that it was up to the court to determine both the amount of compensation and the method of settlement but added that the obvious solution would be to transfer its shares in BOV – which he calculates are worth €195 million, not nearly enough to cover the claim of €325 million.

1973 takeover of the National Bank

In October 2014, the Constitutional Court confirmed that 82 shareholders’ rights were breached when they were forced to surrender their stakes without compensation.

The Constitutional Court presided by Mr Justice Tonio Mallia, Mr Justice Noel Cuschieri and Mr Justice Joseph Azzopardi confirmed two judgments handed down earlier this year by Mr Justice Joseph Micallef.

The judge ruled that the shareholders’ fundamental human rights had been breached when they were made to surrender their stake without compensation.

The court cases had been instituted by shareholders or their heirs in 1992 against the Prime Minister, the Finance Minister and the Administration Council which briefly ran the bank in 1973.

In the two separate preliminary judgments handed down in January and February, the court upheld the claim that their constitutional rights had been breached. The court said it was clear shareholders were forced to give up their shares, even though it might have been in the national interest, or to avoid the bank’s financial collapse.

Mr Justice Micallef had said that, even if the takeover of the bank had been a “salvage operation”, this did not give the government the right not to compensate the shareholders for their losses.

The next step will be for the judge to hear submissions over the value of the shares in question and the liquidation of damages.

The former Nationalist government had unsuccessfully tried to negotiate an out-of-court settlement with shareholders. Sources said the government had offered about €20 million in compensation but this was not accepted.