The Bank of Valletta has decided not to appeal the findings of the financial services’ authority or the €350,000 fine for regulatory breaches regarding its collapsed La Valette Multi Manager Property Fund.
The decision, announced on the Stock Exchange website yesterday, was taken in the light of the “overwhelming” acceptance of the bank’s offer to investors of a share buyback.
The Malta Financial Services Authority in June imposed an administrative penalty of €197,995 on Bank of Valletta and €149,821 on its subsidiary, Valletta Fund Management Ltd, in connection with failures in the administration of the fund.
In its report, the MFSA said the managers of the property fund and the bank, as the fund’s custodian, had failed “to act with the level of care and diligence required of licence holders with regard to the conduct of their business”.
The property fund had been the subject of a number of judicial protests filed by about 300 investors who claimed breaches of investment restrictions laid down in the fund prospectus.
The investors also claimed that the fund invested in nine underlying funds that “exposed investors to gearing of more than 100 per cent of their respective net assets”.
The property fund’s losses are in part being blamed on the Jersey-based Belgravia Financial Services Group Ltd, whose funds were suspended in 2008 and which was placed under criminal investigation. La Valette Funds Sicav had a substantial investment in Belgravia and the investors claimed they were given “a misleading account of the situation”.
The bank had said it was ready to settle the dispute with investors by buying back their shares and offering compensation to the tune of 75c per qualifying share in an exercise costing €45 million. Investors were given until June 30 to take up the limited offer and almost 98 per cent did so.
Taking the offer meant they were asked to sign a paper declaring they were renouncing their right to take any further action against the bank over their losses.
In view of the overwhelming acceptance of its offer to shareholders, the bank decided not to proceed with the intended appeals against the conclusions of the MFSA report, it said in its announcement, signed by company secretary Catherine Formosa.
“This decision has been taken without prejudice to the views of both BOV and (its subsidiary) Valletta Fund Management that the MFSA conclusions were wrong and misconceived, both in fact and at law,” the bank said.
“In particular, BOV and VFM do not accept that their executives carried out their work without due diligence, professionalism and care.”
The bank said it had decided not to appeal the MFSA conclusions as it saw little practical merit in “an extended adversarial dispute” with the MFSA given the response rate to the BOV offer, and “the desire of the parties to bring closure to this matter”.
“The decision not to appeal is taken without prejudice to BOV and VFM in the event that any of the investors who have not accepted the offer (or otherwise disposed of their shares) elect to proceed to litigation.”
Finco Treasury Management, the firm that led the protest against BOV’s handling of the foreign property fund that went bust, accepted the bank’s settlement offer on behalf of its clients. It advised other clients who joined at a later stage that the court battle was not really worth it for small, individual investors because of the expenses and time a court case would entail.
Last week, Bank of Valletta passed the European stress test for banks with flying colours, whose aim is to evaluate their resilience in the face of a hypothetical scenario which, this year, included an economic downturn, distressed financial markets and a sharp increase in defaulting loans.