Dom Mintoff could have saved the National Bank from the trouble it faced in the early 1970s but resorted to threats to take it over instead, according to unpublished research by history professor Henry Frendo.

Mintoff would be caressing you with one hand and sticking the dagger in your back with the other

Two decades ago, Bank of Valletta commissioned Prof. Frendo to carry out an extensive study into the bank’s history but stopped the book as it was going to print in 1993.

“They never told me why. I asked for reasons but I was never told in writing,” he told The Sunday Times 20 years later, as interest in the National Bank saga is revived following a recent documentary film about the former Prime Minister.

Shareholders are still fighting for compensation over the savings and investments they lost when Mr Mintoff’s Labour government took over the National Bank in 1973 and set up Bank of Valletta, rather than allowing the Central Bank to act as a lender of last resort.

The shareholders are meeting tomorrow to establish a common front for negotiations with the government on an out-of-court settlement. Last week, The Sunday Times reported that the government has tried to drop the 35-year-old case by claiming it is time-barred.

In another twist, a footnote in Prof. Frendo’s new book Europe and Empire confirms long-standing rumours that his book about BoV’s history was pulled on a “belated legal instruction” from a “compliance committee”.

“I have every reason to believe it was not the decision of the chairman or the director of corporate affairs, because both of them had read everything I wrote and cleared every word,” he said.

Prof. Frendo had full access to the archives of Bank of Valletta, set up in 1974 after Mr Mintoff forced National Bank shareholders to sign over their shares for free.

The historian believes the chapter detailing the controversial takeover, for which he interviewed many of the ageing protagonists, was the reason for stopping publication.

This, he said, would have been a “full exposé” of what happened between 1946 and 1993, including the crucial financial and political events in the early 1970s.

Prof. Frendo’s book looked into the reasons behind the mysterious run on the National Bank in 1972.

The run, he concluded, was partly the result of Mr Mintoff’s election in 1971 and the “drastic” centralisation and nationalisation policies that in turn triggered a property slump. In the meantime, Mr Mintoff was negotiating the British defence agreement with Malta.

Amid uncertainty, depositors withdrew their savings, but Prof. Frendo said the National Bank had substantial property assets that could have helped.

“This was different from what happened to Lehman Brothers in 2008,” he said, as the bank’s main problem was temporary liquidity.

Until then, the National Bank had always maintained a positive liquidity-lending ratio, Prof. Frendo argued. “It wasn’t a lost cause.”

After all, the National Bank brought together the Anglo-Maltese Bank, the Banco di Malta, and banks belonging to the Scicluna and Tagliaferro families, making it “the greatest accumulation of Maltese capital in history”.

“It was a success story. If there was something very rotten in it, it wouldn’t have attracted one bank after another to join,” said Prof. Frendo, adding that it had always stuck its neck out to assist Maltese industry.

“It had plenty of assets. There were a few cases of overlending to unreliable people, but very few,” he said.

Most of the biggest borrowers ended up making huge successes and between 1946 and 1971, capital went up by nearly 367 per cent, reserves by 452 per cent and deposits by 600 per cent.

It would have survived if the Central Bank played its role as lender of last resort as central banks are doing today.

But instead of intervening, the Mintoff government let it sink.

The Central Bank, Prof. Frendo argues, had a “legal obligation” to step in and help save the National Bank.

According to his research, the Central Bank claimed to have commissioned a full technical account of the events unfolding.

However, Prof. Frendo never gained access to this document, nor did any interested parties who asked.

Instead, as the run on the bank was happening, Mr Mintoff took to the state-controlled TV and Parliament, ostensibly to calm down depositors.

“Mintoff had a style of speaking,” Prof. Frendo said. “He was a negotiator of the first order. He would be caressing you with one hand and sticking the dagger in your back with the other.”

“In terms of political rhetoric, he appealed for calm.

“He just added that on the Central Bank’s advice, the National Bank’s activity would be suspended the following day. Calm... just calm.”

Mr Mintoff’s comments “probably” created more panic, Prof. Frendo said. On December 11, when the Prime Minister went on TV twice, a record £1.3 million was withdrawn.

“Banks are based on trust,” the professor said. If people do not trust the Central Bank to do the best thing, this begins to be eroded. “It could be a subtle process.”

The day after his announcements in Parliament, Mr Mintoff sent police officers and soldiers to all the National Bank directors with a letter demanding they hand over their shares, as confirmed by “almost identical” accounts by various former shareholders.

According to Prof. Frendo, Mr Mintoff started putting pressure on shareholders while telling the public they had already given up their shares.

“This was the strategy... It was psychological bullying. In fact, that’s a kind word. I would use threatening.

“Fear is a very important weapon used in totalitarian states. It affects your psychology, your nervous system.”

The government also objected to allowing foreign banks to help the National Bank. The shareholders were being threatened with personal responsibility if they did not comply – they risked losing their homes.

They could have gone to prison to protect their belongings but this was a time when even the constitutional court was suspended.

Fear is a very important weapon used in totalitarian states

“There was no sense of justice... The shareholders were not keen to become martyrs and heroes and when faced with such draconian measures and attitudes, they more-or-less caved in.

“Whether that makes the whole transfer morally justifiable is another question.

“It could be legally justifiable but there is also the justice of what is right, not just the justice of law.”

Prof. Frendo said it was “sacrilegious” that the court case, first filed in 1977, had taken more than 35 years to conclude.

It is also odd that it has been presided over by so many judges and that no Chief Justice has demanded a conclusion.

“The will seems to be lacking. I think there’s a hidden hand,” he said, suggesting a possible link between the court delays and the fact his book was stopped.

The extended court case enables people to use the sub judice argument, which means the subject is legally active. “But we knew that before I started my work. Everybody knew it. They use sub judice a lot to shut you up in Malta. In this case, sub judice is indefinite.”

He suspects the National Bank case may end up in Strasbourg and – on the simple basis of “justice delayed, justice denied” – the shareholders should win.

Last week, The Sunday Times revealed that in 2010 the Attorney General filed a fresh plea, on behalf of the Prime Minister and Finance Minister, claiming the case was time-barred.

Such cases must be filed within two years of the incident.

“It took them some time to find that out, 30 years or something. It’s odd. And frankly, it stinks,” he said, adding that the Nationalist Party in opposition in the 1970s had defended the shareholders’ rights.

He said that if shareholders had up till two years after the political violence ceased to file a case, this means the period was still active until 1989 – as violence persisted until the Nationalists were elected in 1987.

Prof. Frendo, who has no shares or financial interest in the bank, said compensation has been given to people for less significant issues, such as bus drivers, dockyard workers and “people with villas near chimneys”.

“I don’t think justice is solely and simply about laws. There is a morality that may not correspond to the law. There is also the spirit of law, but maybe we have forgotten about philosophy of law.”

Prof. Frendo said he could “sympathise” with the Labour Party’s position that the government’s time barring plea should be dropped.

“Assuming this is a post-Mintoffian party, I think it makes political sense for the Labour Party to propose the plea be dropped and make the most of the situation by endearing themselves to all the shareholders and those who feel that an injustice has been committed.”

He said it would be ironic if the Labour Party remedied this injustice, but stranger things have happened in the past.

“This is not beyond the realm of the possible. Politics is the realm of the possible.”

When asked why Prof. Frendo’s book was never published, a BoV spokesman said the bank had no comment to make.