Bank of Valletta only got €36.6 million in bids for €50 million worth of subordinated notes, seemingly because its explicit warnings may have scared people off.

The bank was offering the notes, which mature in 2030, with an interest rate of 3.5 per cent. It received 514 applications for a total of €36.59 million – €14 million of them from the public.

Bank chairman John Cassar White said the low uptake was the result of the bank’s clear guidelines that the unsecured bonds were “complex instruments”.

“This means they have a higher risk profile and, as such, are not suitable for investors that have a low risk tolerance. The sales promotion was therefore targeted at the more experienced investor, who has a higher risk appetite. Obviously, there are fewer such investors around,” he told the Times of Malta.

The promotion was targeted at the more experienced investor

He said also that one of the things the bank kept in mind was that the present low-interest-rate scenario could induce investors to choose high-risk investments in search of yield.

“For those with a low risk tolerance, this could be a dangerous strategy. The bank’s information literature clearly stated that the bonds on offer were complex bonds that were suitable only for experienced investors. It seems that many retail investors understood this advice,” he said.

The irony is unsecured issues from private companies are often fully – if not over – subscribed. Mr Cassar White would not comment on this, saying only that it was “a sad reality that many retail investors may not understand the risk/reward dynamics of bonds”.

“Higher coupons on bond issues by definition imply higher risk, but this risk may only become evident when an issuer faces financial difficulties and is unable to meet his obligations to investors.

“Bank of Valletta wanted to make sure that retail investors understood exactly what the trade-off between the interest offered and the risk inherent in the complex bonds was.

“In any case, we are confident that the plans of the bank to increase its capital to meet European Union capital adequacy directive requirements will be fulfilled over the coming months and years,” he said.

The bank, Mr Cassar White added, was considering other options to sell the bonds, including placing them with institutional investors overseas.