The target of Moody's latest report on Malta's banks was to prove a 'negative' outlook. Moody's missed its objective by a mile. A country where house prices have, according to The Financial Times, registered only a 4.3 per cent fall, and with HSBC Malta earning 22 per cent on its equity (and this by lending only 78 per cent of deposits) cannot be in the throes of trouble. Neither now nor in the immediate future.
HSBC is not the only great bank in Malta doing well. The vertiginous growth in the deposits of APS and the obvious proliferation of 'business angels' are there for all to see. When banks are slow to lend, 'business angels' move in.
The Moody's economists who made their negative report are based at its Cyprus regional centre. Cyprus is Malta's competitor for international financial work in the Mediterranean. Many Cypriot economists, if not most, have been trained at the London School of Economics. I spent five weeks with six of them there in 1971 and they were very studious, proud students. Two years ago I shared a top table and an international award for business leadership in an Athens hotel with a leading Cypriot fruit merchant. He happened to be Cypriot leader Georgios Grivas' cousin.
Malta impressed them; they always bemoaned the fact of the high incidence of violence in their country which accompanied their independence.
Maltese banks have not much chance of seeing an enemy tank come crashing through their entrance. Malta is a safe country; its international financial image has never been tarnished by any insignificant scandal redolent of 'oriental' treachery like the poisoning of Grivas.
Moody's splashed out its inflammatory 'negative' outlook report little noticing how it stood contradicted in its assessment of bank solvency by the authoritative FT Europe house price index. The index is universally regarded as presenting the most robust, accessible and timely measure of house price movements on the Continent.
Extravagantly overshooting its target, the Moody's report states explicitly: "That said, there is a strong likelihood that any stresses in the economy leading to a 30 per cent decline in real estate prices would be accompanied by other bank asset quality problems."
Why should we bother about the possible, but certainly unlikely, 30 per cent fall? The reality of our housing market, as the FT Europe house price index points out, is very different.
There is new demand in Malta for commercial property particularly from the US, connected with the poker and pet boom which has 200 million clients. Poker and virtual pet care games on social networking sites are increasingly popular and generating big business online. May the Malta Environment and Planning Authority speed up this development. Our bankers can also help. There can be spectacular growth in this new business.
With its latest Malta job, Moody's has added a massive negative credential to its disastrously declining reputation. It all began with the southeastern Asian crisis of more than a decade ago, it has continued with the present subprime catastrophe. Its faulted negotiating tactics were exposed some 15 years ago by The Institutional Investor, the most prestigious financial magazine on Wall Street.
I must explain my consultancy work with S&P's, the equally famous American rating agency. I never crossed the threshold of an S&P office, but they did come into my office many more times than I can remember. I stopped my work with the agency after the September 11 attacks. I gave an interpretation of that episode which was not music to their ears but which I thought was my duty to give.
All this about Moody's possible errors of judgement make people forget what should be, after all, the chief objective of our bank economists. They should be thinking about the next stage of this present financial firestorm.
What advice should our banks give their clients now that the fears of inflation have started to resurface? What is the probable outcome as regards Central Bank policies about gold, the famous inflation hedge, now that Russia and China have taken such a strong stand on the matter? Will gold go down in the short, and rise on the long term? Will our banks prefer to buy bullion or shares of such companies like Peter Hambros and Anglo Gold Ashanti?
Mr Azzopardi Vella, economic consultant with DBR Investments Ltd, has promoted the Malta Development Fund and advised S & P
johnazzopardivella@hotmail.com