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8 NEWS 9.6.2022 A t the start of a mild heatwave, the last thing islanders want to discuss are events concerning banking and investment tidings. e 7 June 1919 feast reminds us of brave compatriots who protested (four died at the riots in Valletta) against the rising cost of bread and other injustic- es when the island was a British colony. Following the end of colonial rule, the island's population grew from 390,000 in 2000 to 514,000 in 2019. Undoubt- edly, stellar growth in the economy was also due to this explosion in the popu- lation. Some ask, given our land limitations and high population density, if this phe- nomenal growth is sustainable. Still, following two years of a debilitating pandemic which saw the state borrow over €2 billion to maintain business stability and tackle unemployment, it is gratifying to observe that ratings agen- cy Moody's has confirmed Malta's A2 negative rating. In a recent report, it praised the coun- try for the growth and diversification of its economy, adding that the negative outlook reflected a significant increase in the government's debt burden, as well as uncertainties tied to the broader recovery, particularly the rebuilding of the tourism sector. It also reflects on the addition of Malta to the "grey list" of the Financial Action- Task Force (FATF) over concerns relat- ed to anti-money laundering supervi- sion. Concurrently, Fitch ratings has af- firmed Malta's Long-Term Foreign-Cur- rency Issuer Default Rating (IDR) at 'A+' with a stable outlook. is financial resilience clouds a turbulent banking maelstrom which was partly triggered by revelations of the Panama Papers, the unsolved assassination of a journal- ist and associated scandals which led to the resignation of a number of top min- isters at Castille. Both MFSA and FIAU had a busy time waking up to banking investigations starting with Bank of Valletta (the La Valette fund and Deiulemar trust), Sa- tabank, Pilatus bank, Nemea bank and Settanta insurance. In absolute terms, BOV remains Malta's largest bank with total assets exceeding €14 billion com- pared to €7.2 billion of HSBC, and in 2012/3 it faced an embarrassing string of censures over its botched property fund. e case goes back to 2012, when the property fund - officially known as the La Valette Multi Manager Property Fund - was launched in 2005. e La Valette fund was mis-sold to investors who sadly lost their holdings. Many did not understand the volatility of their in- vestment yet it was no secret that Bank of Valletta (BOV), acting as custodian of the botched fund¸ issued clean cus- todian certificates for three years in suc- cession. It all started when promoters of the fund¸ particularly at branches of Bank of Valletta¸ earned cool commissions selling the vehicle as a low risk prop- erty fund¸ which eventually lost €50 million. Its brochure described it as a multi-manager property fund¸ which as the name implies has all the fortitude of a diversified and well-managed vehicle. It all started to go wrong when In- sight as the managers decided to place a sizeable chunk of the invested monies in Belgravia European Property fund, which collapsed. Bank of Valletta had decided to appeal against the decision taken against them by the financial ar- biter, which awarded €3.4 million plus interest to 400 investors. Regulators pontificate that clients should not suffer a loss due to misman- agement. Two years later, BOV offered claimants €50 million in an attempt to settle the case. e offer was turned down and Finco Trust - representing a number of investors - put up a fight, first at a regulatory level and ultimately judicially in front of the Arbiter for Fi- nancial Services. e arbiter reminded BoV not only of its legal responsibility but also of its social responsibilities to so many hun- dreds of investors who had trusted the Bank and relied on its advice and management skills, and this most often when they were of pensionable age in- vesting their life savings to supplement their pension. e wheels of justice grind slowly and MFSA, following three investigations, fined BOV €200,000 for selling high- risk property fund shares to inexperi- enced investors. Surely, a slap on the wrists compared to the unprecedented collapse of investor confidence shat- tered with a €50 million loss. Nobody resigned and no apologies issued, cer- tainly not by politically appointed stew- ards. Now in 2022, the bank recently an- nounced a settlement had been reached out of court on a claim for €370 million payment to Deiulemar shareholders arising out of a trust held by BOV. e case was lost by BOV after contestation before the Italian court. Shareholders of the collapsed Deiule- mar shipping giant were found guilty of fraud and seven members of the com- pany's founders were jailed by an Italian court in 2014. BOV had taken over a trust that held €363 million in the com- pany's assets in 2009. When the compa- ny went bankrupt, bondholders whose savings were wiped out, turned to BOV. e bank said it had filed an appeal in March, and subsequently engaged with Deiulemar curators to explore the pos- sibility of a "mutually satisfactory reso- lution to the dispute out of court", and to mitigate the further litigation risk on appeal. BOV had taken over a trust that held €363 million in the company's assets in 2009. Bank of Valletta disputed the amount in compensation being claimed, saying the shares held were deemed worthless following the bankruptcy of Deiulemar Group. e bank said at the time that the out-of-court settlement offer was made in an attempt to find a "pragmatic, commercial solution" to a messy problem". An Italian court ordered Bank of Val- letta to pay €370 million. In the 2017 judgement, the Italian Court stated that the Deiulemar Group had what is re- ferred to as "un debito occulto", which is basically a hidden liability, of €753 mil- lion, and therefore a liability that was not recorded in the financial statements of the company which, had it been properly recorded, would have shown that the Deiulemar Group had negative net assets as of 2004. en, last month, the bank's board of directors announced an out of court settlement had been reached, without any admission of fault. BOV agreed to pay a full and final settlement in the sum of €182.5 million in respect of the €370 million judgement handed down by the Court of First Instance in Torre Annunziata. us ends another saga in BOV, in which the State enjoys a majority share- holding of 26%. It is all smiles and hung ho attitudes. e share price momen- tarily rallied and the management was showered with kudos that Deiulemar bond holders bowed to accept a lower figure notwithstanding that they had a final judgement in their favour of dou- ble that amount. Another colourful chapter is closed and pensioners/minority shareholders, who for four years were starved of divi- dends , patiently wait to receive a decent return on their investment. Pennies from heaven. All smiles at BOV George Mangion George Mangion is a senior partner at PKF, an audit and consultancy firm, and has over 25 years' experience in accounting, taxation, financial and consultancy services. His efforts have made PKF instrumental in establishing many companies in Malta and established PKF as a leading professional financial service provider on the Island Bank of Valletta CEO Rick Hunkin with Chairman Gordon Cordina

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