The 1973 run on the National Bank of Malta was provoked by the sudden death of director Frank Cassar Torreggiani following a heated four-hour meeting, according to fresh US cables published by Wikileaks.
We do not want to take over Maltese banks, we only want to control foreign banks
US Ambassador John Getz wrote in 1973 that the heart attack of Mr Cassar Torreggiani on November 27 was believed by “local commercial sources” to have provoked the run, which resulted in a serious liquidity crisis.
The Kissinger Cables, the latest publication by controversial media organisation Wikileaks, features an almost daily account of the complex National Bank saga, which is still being fought out in court today.
Rather prophetically, one of the cables warns that the legal challenge by some National Bank shareholders “might take years to resolve in local courts”. In fact, it took decades and is still unresolved.
Although the run was attributed to Mr Cassar Torreggiani’s death, the same cable says the Central Bank of Malta had already reported a significant drop in commercial bank liquidity between April and October.
Compounding matters further is an earlier cable that reports then parliamentary secretary Wistin Abela taking credit for the Government’s attempts to “salvage” the bank as early as March.
“He said the run on the National Bank threatened the jobs of some 30,000 Maltese workers: ‘We do not want to take over Maltese banks, we only want to control foreign banks’,” says the cable, dated March 5, 1973.
In yet another cable, the crisis is described as “an unwitting consequence” of the Labour Government’s “austere economic policies”, namely the unrealistic limits on interest rates that could be charged.
“While these limits reflect the MLP’s populist and socialist ethic and are in conformity with its efforts to restrain inflation, they have encouraged the transfer of capital abroad where interest rates are higher.”
The cables provide a thorough account of Prime Minister Dom Mintoff’s attempts to handle the banking crisis, first by playing down the run and then by rushing shareholders to transfer their shares while he set up Bank of Valletta.
Mr Mintoff adjourned Parliament for Christmas recess on December 11 with the announcement that a new commercial bank would be established – 60 per cent owned by the Government and 40 per cent by Barclays Bank.
This entity had agreed to take over private National Bank of Malta “in emergency situation”, according to the cables.
“Mintoff explained that two weeks ago, [the Government] became concerned over rumours regarding National Bank. Latter assured [the Government] there was no basis for rumours and that business was normal and deposits were on the increase.
“One week later, the Central Bank confirmed that the National Bank was better off than in the past as a result of the introduction of more conservative policies.
“Nevertheless by Friday, December 7, it was clear that a run had begun on the National Bank. Even parastatal bodies had expressed desire to withdraw their deposits.”
In fact, by December 10, some branches were reported to be out of cash by 9.30am, according to the cables.
Mr Mintoff said he regretted that without any serious motive the run on the National Bank had gathered momentum and that its representatives suggested a Government takeover.
The cables also report a “rare appearance” on TV on December 12, where Mr Mintoff appeared with Central Bank research director Lino Spiteri and announced that the National Bank would suspend its activities from December 12 on the advice of the Central Bank.
Mr Mintoff compared himself to “a brave cowboy firing a shot in the face of a cattle stampede”.
“During a calm ‘fireside chat’ type of interview, Mintoff admitted his statement in Parliament the previous evening had failed to halt the ‘stampede’ by depositors who withdrew more than Lm1.3 million on December 11, another Lm1.1 million had been withdrawn on December 10 and Lm400,000 was withdrawn on December 7.”
Mr Mintoff said there was “no visible reason for this panic” and added that it was malicious to insinuate that this situation was a move by the Government to take over the bank, according to the cable. Though Mr Mintoff stressed that the Government had intervened in the public interest and was certain this was not a case of fraud, the comment section of the cable says: “Despite Mintoff’s public assurances regarding the absence of fraudulent activities, some commercial sources believe he has information regarding irregularities engaged in by the bank’s directors.”
The cables then outline Mr Mintoff’s efforts throughout 1974 to get two thirds of shareholders to sign over their shares so that legislation could be passed setting up Bank of Valletta.
They also detail his negotiations with various banks, including the Libyans, to invest in the new bank together.