As I have been charged with giving misleading information, I respond to the article ‘Surplus and reward’ (June 8) by Piero Ugolini, Richard Nun and Larry Clinton. I state at the outset that this is my final contribution in the press on this subject. Of course, I remain prepared to stand by my views if and when called upon by any court-appointed independent financial expert(s) who may be assisting the court.
The ‘three wise men’ engaged by the government (doubtless at considerable cost to the taxpayer) to counteract a detailed affidavit which I presented in court on behalf of National Bank of Malta shareholders in January 2015 still contend that the bank was both ‘equity insolvent’ and ‘liquidity insolvent’ at the time of the government’s intervention in December 1973 (when the bail-in rules quoted by the experts were non-existent).
I submitted ample evidence in court to disprove these contentions and maintained my views, supported by further documentation, even during my cross-examination in court by the Attorney General during three lengthy sessions. It was after the third one that the AG sought a presence in court, in two sittings, of the three foreign experts.
Previously, in June 2015, they hadpresented in court an affidavit contesting my views. In their verbal presentations in April and May 2016 they practically repeated what they had said in their report.
All this and the various court sessions held since then - because the AG kept objecting to the names put forward by plaintiffs’ lawyers of local financial experts to advise the court on the conflicting technical submissions - cannot but be interpreted as being delaying tactics. The foreign experts’ denial is not convincing.
Space precludes me from going into the detail of the conflicting elements especially how NBM’s so-called ‘net equity deficiency’ was created through excessive non-performing loan provisions made after NBM’s takeover. I highlight below some relevant factors which the experts conveniently avoided in their article.
The question of whether or not the NBM was technically insolvent or illiquid is no longer a point at issue. This because, had the courts accepted the view of equity and illiquid insolvency, surely no suggestion of due compensation to the NBM shareholders would have been made by the judges concerned.
I reiterate that the Constitutional Court of Appeal confirmed a previous judgment in favour of plaintiffs and decreed that value had passed in 1973 from the NBM shareholders who were not paid any compensation and this to the advantage initially of the Council of Administration, with the BOV benefitting from March 1974.
The experts also make store of the fact that I have no experience of failed banks. I humbly feel that this is more than compensated by the fact that I myself was very close to the banking scene at senior management level in December 1973 and had a very good feel of the political undertones that led to government assuming not only control but also ownership of the NBM. On the other hand, Ugolini and his colleagues came on the local scene decades later and they relied principally on what they were told, and on such documentation as they were given, by the Central Bank of Malta and the MFSA.
The question of whether or not the NBM was technically insolvent or illiquid is no longer a point at issue
No solid reasons were put forward by the experts as to why the CBM failed to invoke its legal right to act as a ‘lender of last resort’ although the NBM had adequate gilt-edged UK marketable securities to offer as security.
It seems that an important document (which is included in the voluminous documentation presented in court by both plaintiffs’ and defendants’ lawyers and consultants) has been ignored.
This is a file note dated December 7, 1973, prepared by the then CBM deputy governor on a meeting he held with others with then Prime Minister Dom Mintoff.
In this, Mintoff is quoted as having instructed the DG to consider, subject to the approval of the Finance Minister in terms of the Central Bank of Malta Act, the possibility of tiding the NBM over it temporary liquidity problems by using its functions as a ‘lender of last resort’ as provided by that legislation.
The three experts allege that I proposed compensation of €426 million. This is an entirely misleading statement as the amount quoted is what I said was my calculation of the total amount (net of its initial equity stake of about €7.5 million) derived by government for its shareholding in BOV since March 1974.
This includes the current market value (about €236 million) of the government’s shareholding. The experts also tried to confuse the issue by stating that, if the government agreed to settle out of court by compensating NBM shareholders by a simple transfer of BOV shares, this would affect government’s annual budget surplus. Not so. Only the government income from its share of BOV’s dividends comes into play.
Moreover they have sidestepped the fact that, before the court of first instance and even on appeal had decided in favour of plaintiffs, government did attempt an out-of-court settlement with a derisory offer of around €18 million which was justifiably declined by plaintiffs.
Obviously, the plaintiffs’ hands were strengthened, and their expect-ations rose considerably, by the judgments culminating in that of the Constitutional Court of Appeal and the estimates made of the gains of over €400 million made by government from its BOV shareholding.
I reiterate that it remains for the court to determine the amount of fair compensation to be paid by government to the NBM shareholders. This is the issue that remains to be decided 44 years after such shareholders were deprived of their assets in what was then Malta’s second largest bank.
The court delays on which I commented above and in my previous article (May 17) would certainly have been avoided had the government, through the AG, not decided to engage - to counteract my own affidavit and verbal evidence when cross-examined - no less than three foreign experts instead of relying on local expertise which surely is amply available at the CBM and the MFSA.
Anthony Curmi is a former banker.