Mapfre Internacional’s increased commitment to Middlesea Insurance plc after the proposed acquisition of Munich Re’s 19.9 per cent stake is a vote of confidence in the group, in Malta, and in Bank of Valletta, bank chairman Roderick Chalmers told The Times Business this week.
The news that European insurance giant Mapfre is applying for regulatory approval to finalise the transaction to take a controlling interest in MSI, in which BoV has a 31.8 per cent shareholding, emerged on Friday just after the bank presented its interim financial statements to March 31.
Bank of Valletta also issued an announcement to affirm its own commitment to MSI: the bank has conditionally agreed with Mapfre that it would not tender its shares under the mandatory bid Mapfre will be required to make under Listing Rules. All developments are subject to regulatory approval.
“It is excellent news all round,” Mr Chalmers said on Monday, recalling Mapfre and BoV’s support for MSI in 2009, when the insurance group launched a €60 million rights issue to increase its capitalisation.
“We have been in discussion over this potential transaction with Mapfre for some time. Bank of Valletta has agreed it will not tender its shares under the mandatory bid and will continue to be a shareholder in MSI. We have also come to a conditional agreement on a number of other aspects as to how the business should be conducted. Mapfre is one of Europe’s largest and most respected insurance companies. It operates in 43 countries. While Mapfre brings considerable technical expertise to MSI, Bank of Valletta brings local knowledge to the group – an excellent combination.”
On Friday, Bank of Valletta reported pre-tax profits for the first six months of its financial year to March 31 of €45.2 million, remaining “in the same territory” of the €47.5 million pre-tax profits for the same period in 2010.
There was a four per cent increase in net operating profit to €47 million, and an improved contribution from BoV’s interests in the insurance sector through holdings in MSV Life and Middlesea Insurance plc. BoV’s share of profits came in at €3.8 million compared to a loss in the first half of 2010 of €3.6 million.
The operating profit was impacted by a negative swing in fair value movements: a gain of €5.9 million in the first half of 2010 fell to a negative €5.6 million between last October and March.
Considering the current uncertainty in the financial markets driven by the sentiment in the eurozone – which has since worsened with the “nervousness” over the potential spill-over from the Greek crisis – Mr Chalmers said the results were satisfactory.
Locally, the general mood was influenced by the increased caution being exercised by businesses and investors. While demand for credit has slowed, there has been continuing competition in the banking sector for customer deposits. Bank of Valletta itself is to launch a set of “attractive and innovative” products aimed at depositors in the second half of the year, Mr Chalmers said. These products would meet market requirements and would also support Bank of Valletta’s ongoing preparations in anticipation of the implementation of the Basel III regulatory regime.
Core Tier I capital currently stands at 10.8 per cent, Tier I and Tier II capital together stand at 15.3 per cent, and the liquidity ratio is 40 per cent.
Mr Chalmers on Friday confirmed Bank of Valletta is currently undergoing the latest stress test mandated by the European Banking Authority and the results would be made public next month. He indicated the bank was confident the outcome would be “favourable”.
The bank did not follow the European Central Bank’s lead last month when it raised interest rates to 1.25 per cent from the record low of one per cent set in May 2009.
Mr Chalmers said any decision on interest rates the bank would take in the short-term would be even-handed, so as to protect the interests of both depositors and borrowers alike.
“Bank of Valletta did not reduce rates as far down as the ECB’s rates back in 2009,” the chairman explained. “Savings are important to people in Malta and we wanted to be in a position to continue to pay reasonable rates of interest on deposits. We were at the time – and we still are – being faced with competition which is not borrowing in Malta to lend in Malta, but borrowing in Malta to export the funds, which is not good news for the local economy. Bank of Valletta is the cornerstone of the local economy, and it is important that it continues to attract deposits.
“For some time, we have been paying above ECB rates on our deposits. At the same time, we are not raising the rate on lending. On a European basis, our deposit rates are still attractive, as are our lending rates because our spreads are not wide.
“Given the current economic situation, we felt that now is not the time to be asking people to pay an extra 25 basis points on their home loans or on their business loans. We will, as always, try to find an equitable balance – and we will keep the situation under review.”
Mr Chalmers stressed the local and international scenario was becoming increasingly complex, with inflationary pressures nudging upwards, the situation in Libya deteriorating, the after-effects of the Japanese natural disaster, rising oil prices, and speculatively-driven commodity prices. He explained another 25 basis points in the ECB reference rate is being priced in by the markets for the summer or early autumn, and would likely materialise.
Domestically, the bank is committed to support businesses affected by the Libyan crisis, particularly those which are striving to retain teams previously based in Libya and which have inventories in the country.
“Bank of Valletta’s direct exposure through trade finance or lending into assets specifically in Libya is fairly small,” the chairman explained. “The trade financing will unwind of its own accord, and we feel that we can afford to be patient with the direct lending. Common sense will eventually prevail, and a more enlightened and benevolent leadership will emerge in Libya. It is a country with huge economic potential: what is happening there shows that no people can be kept under tyranny or in bondage forever.
“There is a secondary exposure. We are supporting Maltese companies which sought to grow their business by venturing into Libya. Some will incur losses. The business of banking is not completely risk-free. We knew Libya was a profitable place to do business – but we were always aware of the significant political risks – and set our exposure limits accordingly. If we take some hits, we will absorb them and move on.”
Asked about the regulator’s report on the investigation into certain matters related to the La Valette Multi-Manager Property Fund – the subject of a series of judicial protests and counter-protests in the last few months – Mr Chalmers reiterated the bank was waiting to receive the final report from the regulator.
“We are expecting the report soon,” he said. “And when we receive it, we will react and respond to it.”
Was the report’s publication in the bank’s interest?
“I recognise this is a story that has to be covered,” the chairman replied. “And I respect the press for telling it. But, as always, it is important that it is told correctly. There is an established protocol and regulations as to how the Malta Financial Services Authority should conduct itself on investigations of this nature, and I have no doubt whatsoever that it will follow them.
“Of course the decision or determination of the MFSA will be made public. It has a duty to do that, and one has to look to the regulations on how and when this is to be done. Whether we agree or otherwise with the MFSA’s ultimate view, of course, remains to be seen.
“We very much regret the poor performance of the fund and the distress that this has caused our clients; we recognise this it is not a public relations exercise that we are going to win any time soon, even in the unlikely event that we were to receive a determination that concludes we have been heroes. The whole affair is taking up a huge amount of senior executive effort at a time when the economic environment and market conditions are fragile and difficult, and where it is vital that we remain really focused on taking the right decisions. These are all good reasons for us to work really hard to try to put this very unfortunate episode behind us as soon as we are able to.”