Investors in the Bank of Valletta’s property fund that collapsed after investing in high-risk sub funds that had gone bust are unlikely to remain without compensation for as long as National Bank of Malta shareholders have been waiting to get theirs after they had been made to part, unceremoniously, with their capital. Although this may be considered a consolation of some sort, they, too, should not have passed through such a bad experience.
The bank’s shortcomings insofar as the property fund is concerned will not wear off easily, if at all, but, at least, the regulatory authority has acted well and is providing remedies too. Inexperienced investors who had put money in the fund will now get an additional 25c per share to the 75c they were offered by the bank last year.
Opinion is divided on who ought to be held accountable for the fund’s collapse. There are those who believe that the whole bank’s board ought to step down; others hold that it is the people down the line that should be held accountable. Others still believe that no one should resign until the Malta Financial Services Authority or the courts pronounce themselves on personal responsibility. The latter argument seems to be the best grounded.
The bank appears eager now to remove the impression that it is not acknowledging the fact that there are lessons to be learned from the collapse of the fund. This is essential for there is indeed a lot to be learned in this regard not just by the Bank of Valletta but by other banks or financial institutions as well.
In the frenetic rush to attract new clients and deposits, financial institutions would need to be constantly prudent in their risk-taking operations and also in their approach towards people who may not have enough financial knowledge to properly assess any investment decisions that they could be encouraged, or, perhaps, rashly tempted, to make.
Yes, the value of an investment may go up or down and there is always the small print that has to be read. But how many of those encouraged to invest in new financial products are inclined to go into the fine details of an investment? In the case of the BoV property fund, the MFSA is now appointing an independent company to review all the bank’s client files to see how many inexperienced investors were sold the fund.
The study will determine whether clients satisfied the regulatory conditions of having invested €40,000 over the previous five years when they signed a declaration saying they were experienced investors. Just as it is important for financial institutions to be clear in their prospectuses, it is also important for inexperienced investors to get professional advice before making their investment decisions.
The collapse of the property fund ought indeed to provide useful lessons. Malta’s banking system has always done well each time it has been put to the test but the European Commission now seems to be worried by the banks’ high exposure to the property market. On the other hand, the International Monetary Fund said that, compared to the euro area peers, Maltese banks had continued to outperform in terms of profits and capital adequacy. Besides other points it made, it also called for the strengthening of the deposit compensation scheme.
As it happens, only the other day, the European Commission launched proposals to ensure that the right steps are taken when the financial situation of a bank deteriorates. The plan ought to be acted upon with urgency.