The article by Piero Ugolini, Richard Nun and Larry Chilton (Surplus and Reward, June 8) regarding the National Bank of Malta takeover by Act of Parliament XLV 1973 on December 12, 1973, is a fabrication put forward by the government to justify the bank’s illegal expropriation without compensation.

Most would be unaware that the government recruited these same experts to defend the position of the government and the role played by the Central Bank during court proceedings following the favourable judgments given by Judge J.R. Micallef, confirmed in the Court of Appeal.

Mr Ugolini has already been recruited to do some work for the government before, so rather than being independent he is to some extent compromised by already having receiv­ed money from the people he is now being asked to defend. The argument put forward by the government is simple: “We took over the bank to save the economy. When we did, we found it was worthless, so no compensation is due.” This is convenient spin for the government and the public that benefitted.

Ugolini et al support the government’s claim that the Na­tional Bank was illiquid. Suffice it to say that the liquidity parameters were set by the Central Bank. At the time, the legal liquidity requirement was 25 per cent of deposits.

The NBM figures show the following liquidity ratios: December 1971: 36.62 per cent; December 1972: 34.72 per cent; December 1973: 28.91 per cent (after the unexplained run). Documentation shows that the overall liquidity ratio was consistently above the statutory minimum of 25 per cent of current liabilities.

Ugolini, Nunn and Chilton simply endorse what was conveniently stated by the government in 1973, while the documented facts as illustrated above show otherwise. At no point did the bank withhold deposits, and even at the height of the government-aided run, never did it default on payments to its depositors, nor did its liquidity level ever fall below the legal requirement.

In fact, specific CBM reports in October of 1970, March of 1972 and July 1973 did not flag liquidity ratios as being of any concern. Moreover, the National Bank held substantial local and foreign reserves with varying maturity dates that could have been sold to add liquidity. These were, in fact, sold between December of 1973 and March of 1974 by the government right after the takeover, so there is no reason to think that these could not have been used as a guarantee for the Central Bank to forward the cash as defined in its statute and to act as lender of last resort.

Ugolini et al also support the government’s claim that the bank was insolvent. The ac­counts posted and accepted by the Central Bank of Malta in 1972 show that the NBM was solvent to the tune of LM2.9 million, as audited by the bank’s auditors Turquand Young.

The bank had not failed and it was still a viable entity even after it was falsely declared illiquid and insolvent

These auditors had been appointed many years previous to the takeover and continued to be accepted by the Central Bank right up until the takeover. As soon as the take­over was ef­fected, the government proceeded to change the auditors and appoint ‘new ones’ of their own, without having reason to do so. This was done so that the accounts could be drawn up to suit the government, without any contradictions that would have followed should the same auditors that approved the books earlier be forced to change their view under pressure from the government.

Coat of arms of the National Bank of Malta.

The following accounting procedures were applied in order to achieve the desired results:

Provisions for bad and doubtful debts increased from LM2.4 million in 1972 to LM5.9 million in 1973 based on forecasts that were proven wrong over time.

Zero given for goodwill.

No revaluation of property held by the bank since 1809.

Sale of NBM reserves by the government prior to maturity at a loss of LM627,000 attributed to the shareholders.

After applying these four accounting procedures to the detriment of the shareholders, the government presented a net position of -LM253,000. Reversing any one of these procedures would have instantly put the National Bank of Malta group back into a positive equity position. Putting them all back would show that the calculations as presented in court by the shareholders are factual and valid. It also worth noting the LM216,000 tax charged in the year when the alleged loss of LM3.1 million was incurred.

The writers go on to say that the takeover legislation as passed by the government, and its actions, including the LM3 million investment of new capi­tal, was the only viable option to save depositors and the econo­my at large. Again, this is un­true, as the bank continued to operate without a single cent of assistance for five months after the takeover.

Had the bank really been in a state of collapse, government investment would have had to be made immediately – in fact, the LM3 million investment was only ever put into the new­ly formed Bank of Valletta Ltd five months later. This shows the bank had not failed and it was still a viable entity even after it was falsely declared illiquid and insolvent.

Now that the Central Bank has appointed these experts to justify the takeover it appears the court is being asked to justify the takeover at zero compensation. Citing ex­amples of failed banks to show that no compensation is due is again deceptive. To my knowledge, none of the examples mentioned in the article were taken over in similar circumstances. In none of these cases was there legislation passed in Parliament to defraud the shareholders before any accounts were presented to them.

In a country where there is no political will to find a fair and just settlement, one might expect that a ruling is in the offing. As I have stated in the past, one must concede that for a bank to become insolvent, the entities to whom it lent the money need to be insolvent too. If the government insists that the National Bank of Malta group lent money unwisely it must also declare to which companies or entities it should never have lent to. If these companies have flourished, and the ones with the largest loans like the Corinthia Group have grown to become the champions of the Maltese eco­nomy, how can one allege that the National Bank of Malta was wrong to have supported them in our bid for independence?

Unlike a company in Panama, all transactions are traceable through public records so further investigations would be possible if deem­ed necessary. The truth, rather than a lie, should be presented to the Maltese public, and all the claims of bad lending should be listed and inspected if need be.

According to the last inspection headed by Lino Spiteri in July 1973, only a few months be­fore the run in early December, the bank was suddenly overexposed to tourism and property, when earlier inspections concluded that the provisions were adequate. Yet history has proven that the bank directors were right all along. The experts should concede that it was right for them to sustain these Maltese companies and to enter the eye of the storm with faith and conviction in Malta and its enterprise. The ‘experts’ were, in fact, proven wrong by the passage of time and the success made by these same Maltese companies, which were given the chance to start the Malta we enjoy today.

Those who endorse the statement that the bank was overexposed to property and tourism show they know nothing about the Maltese economy and which industries have performed well for it since independence.

Jeremy Cassar Torregiani has a B.Com and BA (Hons) in Banking and Finance. He is the great-grandson of Antonio Cassar Torregiani, who founded the National Bank of Malta in 1946, and the grandson of Frank Cassar Torregiani, who died unexpectedly in the run that led to the takeover of the bank by the government in 1973.