Anthony Curmi’s opinion ‘National Bank compensation’ (June 15) presents, once again, snippets of information that are not factual or are incomplete and misleading. To this end, we reply here with the facts and evidence as we wait for the court to appoint two independent experts.
Curmi’s detailed affidavit in January 2015 lacked credible evidence to show that NBM was solvent or viable. In contrast, our affidavit in June 2015 exposed the flaws in virtually all of Curmi’s claims. He relied largely on events that occurred after NBM had failed and on convoluted calculations. We showed that NBM was both illiquid and insolvent in December 1973, its shares had zero commercial value, and it had failed due to poor management.
The same conclusion was reached in 1973 by Deloitte & Co. We based our conclusions not on “tainted information” but on a thorough review of documentation requested by us in order to reach independent, fact-based conclusions. We relied on the official documents presented in court, original minutes of the NBM board of directors and executive committee, detailed reports prepared by Deloitte & Co., reports of the CBM, and minutes of meetings between the NBM, CBM, and the Prime Minister.
In 1973 there were two major banks in Malta – NBM and Barclays. The banks were of similar size, operating in the same environment with access to the same depositors and borrowers.
Par condicio for conducting business was in place. However, after some years of operation, NBM was illiquid and more than 40 per cent of its loans were non-performing while Barclays had a very low level of problem loans. Depositors were withdrawing their money from NBM and moving it to Barclays – fleeing to safety.
This is well-documented in the minutes of NBM board of directors a year earlier before the ‘run’ took place. Since Curmi was “very close to the banking scene” and had a “very good feel of the political undertones” at the time, perhaps he should explain why only NBM had such massive problems but Barclays did not.
Indeed, it is very peculiar that Curmi in his affidavit or in any other notes never explained why the NBM became illiquid and insolvent even though he was an officer at Barclays Bank at the time and was well aware and even stated that NBM was a poorly managed bank. The NBM was to a large extent the private piggy bank of the major shareholders who took loans and then failed to repay them on time.
Curmi again inaccurately says that “CBM failed to invoke its legal right to act as lender of last resort (LOLR)”. The minutes of December 7, 1973 clearly indicate that the NBM had the right to “apply/request” lender of last resort assistance from the CBM under Section 15k of the Central Bank Act if “need arose”.
The minutes also report that at that meeting the NBM officials stated that NBM “had substantial liquid funds” and, therefore, no need for LOLR. The fact is that the NBM never made an official request for access to LOLR. One must note that the CBM, like central banks all over the world, had no legal obligation to provide LOLR funds.
Central banks also do not provide LOLR assistance unless a bank first requests it and, in order to qualify, a bank must be solvent and viable, and have enough collateral to pledge for the LOLR loan. No evidence was found in the files of NBM or CBM or produced by Curmi or NBM counsel showing that NBM had ever applied for LOLR assistance, and even if it had applied, NBM was not a viable bank at the time.
Curmi also claims that NBM had “adequate gilt-edged UK marketable securities to offer as security”. However, the fact is those securities had apparently already been pledged to other banks so could not be offered as collateral or sold to raise liquid funds.
Curmi quoted the December 7 meeting but conveniently omits to quote the December 10 meeting between the NBM and the Prime Minister when the crisis accelerated. The minutes of the December 10 meeting say: “The National representatives indicated that it could be possible for government to take over National without putting up any money (that is giving the shares at nil value). The important thing was to safeguard the depositors.”
And the Prime Minister previously said: “If the risk was to be assumed at all it had to be because of the depositors and because of the implied threat to the economy.”
It is important to emphasise that NBM had no deposit insurance scheme at the time and a failure of NBM would have resulted in large deposit losses by the population, businesses, and public enterprises. As it has been the case worldwide during banking crises the best way to stop a run is for government intervention and full coverage of the deposits by the government.
This is why we stated in court that the Maltese government intervention was both timely and appropriate.
Regarding the compensation of €426 million. Curmi wrote this in the first article and now seems to indicate that it is not a request but only a calculation. A calculation of what if not a suggested compensation amount? We were astonished when Curmi claims that losing the shares of BOV will not “affect government’s annual budget surplus but only the government income from BOV’s dividends”. Lower government income will affect the budget and loss of assets/ownership by the government, which will have an impact on bond ratings and interests costs.
Finally, Curmi reiterated that the court must determine the amount of fair compensation. We are of the view that the court first must decide whether any compensation is justified. NBM failed because its primary owners and directors mismanaged the bank and no one was willing or able to rescue it.
The shares of NBM had zero commercial value in December 1973 just like in 1995 at Barings Bank in England (sold for £1), the Spanish bank Unnim sold to BBVA in 2012 for €1, and only a few days ago on June 6 when Banco Popular was sold to the rival Banco Santander for €1.
In all of these cases, as also in the recent failure of the three Italian banks in late 2016, the shareholders were wiped out and received nothing. In our experience and from precedents in many other countries – Europe, East Europe, Asia, Africa… worldwide – shareholders of failed banks received no compensation.
Piero Ugolini is a former assistant director at the International Monetary Fund and senior financial sector consultant, Richard Nun is a former deputy director Texas Banking/Finance Commission.
On June 6 Banco Popular was sold to the rival Banco Santander for €1. Photo: Cristina Nixau/Shutterstock.com