The article entitled ‘Impasse over National Bank valuation’ (Business Observer, July 14) sums up correctly the present situation in regard to the two pending court cases instituted by NBM shareholders against the government.
However, as the article makes reference to two rather wide views on what would constitute fair compensation (zero and €325 million) to NBM shareholders, I think it proper to throw some light on how I arrived at the latter figure, more so as my name is mentioned in the article.
The detailed arguments in support of my own estimate of the present day value (adjusted for inflation and taking into account dividends distributed by Bank of Valletta etc) of the NBM’s shareholders’ stake in the bank (which was taken over by government without compensation) are contained in an affidavit presented in court in January 2015.
What led me to arrive at a fair compensation of €325 million was based on my estimate of Lm7 million of the NBM’s real 1973 net equity value as against government’s experts’ contention of zero value because, in their view, the NBM was illiquid and insolvent in 1973.
Both these points were exhaustively debated in court. An important factor is that the Constitutional Court of Appeal did not only confirm two judgments but stated that the value had passed, without any compensation, from the NBM shareholders to the Council of Administration (COA) and then to BOV and that they both benefited from such value received.
This notwithstanding, the government’s experts kept bringing up the illiquidity and solvency issues as alleged proof of zero value although what now remains to be decided by the court is the quantum of compensation.
The zero value was not based on a professional evaluation of the bank early in December 1973. This negative equity value was estimated by the government and its advisers in just four days from the time the NBM was closed until it reopened with the same name but owned and managed by the COA following the urgent enactment of specific legislation.
Indeed, it was only on March 20, 1974, that the bank’s assets and liabilities were transferred by the COA to BOV (when the government infused additional capital of Lm3.3 million) and a report was produced by government-appointed new auditors who concluded that as at December 31, 1973, the value of NBM’s assets exceeded its liabilities by Lm253,000. NBM’s previous long-standing auditors were shown the door by the COA.
Although NBM’s own auditors certified that the NBM had a surplus of assets over liabilities of nearly Lm3 million 12 months earlier, the new auditors concluded that the bank had a negative value. This substantial change has been challenged on various grounds, which are well documented in court and which now remain to be evaluated by independent expert(s).
In essence, NBM’s 1973 pre-tax profits of Lm795,000 before deducting an excessive increase in provisions for Non-Performing Loans (from Lm2.4 million to Lm6 million) and extraordinary items of Lm517,000, was turned into a final loss of Lm3.2 million – wiping out all the NBM’s equity and resulting in a net equity deficit.
In my January 2015 affidavit, I supported with figures cogent reasons why I consider that NBM’s 1973 real net asset value was in the region of Lm7 million and not zero. Undisputable details were given of what the government derived from its shareholding in BOV by way of net dividends, bonus shares, etc for a present day value of at least €387 million.
The Lm387 million estimate has increased further as, apart from the reasons given below, the above-mentioned calculations were based on the then share market price of €2.10 per share, whereas the current price is nearer €2.20.
Given that the figure of Lm7 million is more than double than that of the government’s equity infusion in BOV, I contend that the NBM shareholders can rightfully claim over €300 million by way of compensation which figure includes the present day value of Lm7 million (i.e. in excess of €61 million).
Since the above-mentioned affidavit, the government received yet more dividends, etc from BOV. Indeed, the government presently holds over 98 million ordinary shares. At the current market price, these alone are worth €216 million. Certainly there is ample room for the government to pay fair compensation without this being a burden on the government budget and thus on taxpayers.
These are the technical aspects which the court, before pronouncing judgment, is now seeking to have evaluated by independent expert(s) as mentioned in the article.