Issue link: https://maltatoday.uberflip.com/i/1518324
7 NEWS maltatoday | SUNDAY • 31 MARCH 2024 would have been unrecovera- ble. This was achieved through the creation of a new property index that devalued the collat- eral against which the NBM had issued credit to so many Maltese enterprises, so as to present the bank as having neg- ative equity. Some of the NBM's share- holders and heirs believe that even members of the business community of the time, wel- comed Mintoff's forced na- tionalisation. "One of these adjustments was to present the Corinthia loans, which were the largest the Bank had giv- en out to kick-start the tourist industry, as bad and doubtful advances that could never be recovered," Jeremy Cassar Tor- regiani, whose family was one of the bank's major sharehold- ers and directors, told Mal- taToday in 2022 of the Mal- tese-owned international hotel chain. "As such they had to be paid for by the predecessor share- holder. If Corinthia were pre- sented as a bad debt, how and why were the personal guar- antees never called in so as to make good for the losses? If reversing this one transaction alone could have put the very bank that funded the enter- prise, back into positive equi- ty... how is it possible that the government was able to justify the transfer of this business to Bank of Valletta for no consid- eration?" Upon takeover, the new Council of Administration produced a balance sheet claiming a negative equity of Lm253,000. The NBM's share- holders accused the Council of having significantly un- dervalued its properties, with no provision for goodwill on its 27 branches across Mal- ta and Gozo, and of raising bad debt provisions by 151% to Lm5.9 million – obtained through a property index that claimed prices of villas, houses and apartments had fallen by 36.6%, and the price of unde- veloped land by 84%. By 1978, Bank of Vallet- ta managed to reduce its bad debts by Lm4.3 million over a period of just five years, and debts that had previously been classified as 'unrecoverable' were nearly all recovered in full. The rest, for BOV, was his- tory: a successful state-bank- ing enterprise that extended millions in credit for homes and businesses, just as another nationalised bank, Mid-Med – formerly Barclays Bank Inter- national – would follow suit in 1975. Mintoff: abrasive socialist A simplistic view of the NBM takeover is that Mintoff had waged war on the island's capi- talistic class early on in the nas- cent years of Malta's socialist reinvention as a republic. But in the 1970s, Malta was not a 'normal' economy. A working class accustomed to poverty, mortified by the over- weening Catholic junta of Mi- chael Gonzi, with economic aspirations limited by the Brit- ish military powers, was now forcefully represented by a new Labour administration. As recounted by Lino Spiteri, Malta had to nationalise many strategic assets under British control even after Independ- ence. "Barclays dominated the Maltese economy," he said, so Mintoff worked to introduce the State as a shareholding partner before later exercis- ing full nationalisation – and with mutual agreement of both sides. "The historic circumstances of the day were that the com- manding heights of the econ- omy were in the hands of for- eigners. Mintoff did not want this." Ironically, the late Spiteri noted, the situation had all but been reversed four decades lat- er. Secondly, Malta's industri- alisation had failed to take off under the Borg Olivier ad- ministrations. Malta was left to depend, too much, on the engulfing British military pres- ence. Mintoff had to affect a financial and economic revo- lution to switch Malta from a military base to a job-creating and exporting economy. That required an interventionist government strategy that could not be left in the hands of Mal- ta's old bourgeoisie – perhaps another story requiring reams of newsprint. Spiteri conceded that after the NBM takeover, "it resulted the problems had not been as big as it seemed throughout the run on the bank, but at that point in time the problems looked big." But certainly enough, Bank of Valletta and Mid-Med were part of a national, political and economic strategy to extend credit towards Malta's new capitalist class of industrialists. Court compensation order Well over four decades later, the shareholders of the Nation- al Bank of Malta and their heirs are seeing light at the end of the tunnel. For years, they have insisted they were owed, in present-day terms, €325 million as "fair and reasonable compensation" compensation for the Lm7 million that was the net asset value of the bank in 1973. The financial appraisal was carried out by banker Anthony R. Cur- mi (brother to the late Vincent Curmi, director of Sciclunas Estates, the landholding com- pany for the heirs of Marquis John Scicluna, whose Sciclu- na's bank was a precursor of the NBM). The government, on its part, has always claimed the NBM shares had no value at the time of nationalisation; previous settlement offers ranged from a mere Lm8 million to around €25 million under Nationalist administrations. Its consult- ants – former IMF consultants Piero Ugolini, Richard Nun, and Larry Chilton – claim Cur- mi's assessment was "unrealis- tic" because it was the Maltese government that later made BOV a success by restoring public confidence in the bank and fully guaranteeing all de- posits which the NBM was un- able to do. They also blamed the NBM of having a "history of self-serving and imprudent management practices", which endangered the bank through non-per- forming loans that increased bad debts. "Government had no choice except to intervene in order to protect the depos- itors and creditors and to pre- serve stability of the broader financial system." In October 2014 a Constitu- tional Court finally confirmed that shareholders' rights had been breached when they were forced to surrender their shares without any compensa- tion. Another decision upheld by the Constitutional Court recognised their right for com- pensation. The latest judgment in this case is however clear on one thing: that government's take- over of the NBM was "neces- sary in the circumstances and served to relieve the bank of the repercussions the run would have had on Maltese banking and the economy, not least in the interest of depositors and employees. There is no turning on what is a foundational belief of this Court, and on which the resulting compensation will be based." So the €111 million compen- sation is now based not on as- set values, but on the breach of the right of shareholders' private property: and based on European Court rulings, this would come at a discount first of 30%, given the government's legitimate aim at nationalising the bank, and on that resultant value another 20% discount to factor in "uncertainties" had the government not intervened to 'rescue' the NBM. Malta: the National Bank saga It was a run on the bank in the first week of December 1973, that prompted the start of a government takeover of the National Bank of Malta THE government will appeal the court decision to award €111 million compensation to the shareholders of the National Bank of Malta, na- tionalised in 1973. A spokesperson for the Of- fice of the Prime Minister told MaltaToday the govern- ment will appeal the ruling over the coming days. Compensation was award- ed last week in two separate cases filed by several share- holders, most of whom have passed away and were repre- sented by their heirs. Shareholders of the Na- tional Bank were not com- pensated when government took over their shares in 1973 in the wake of a run on the bank's deposits. In its ruling, the court did say the government's take- over of the NBM was "nec- essary in the circumstanc- es and served to relieve the bank of the repercussions the run would have had on Maltese banking and the economy, not least in the in- terest of depositors and em- ployees." However, it still found that the shareholders' human rights were breached when the shares were taken over without any compensation. Judge Joseph R. Micallef then proceeded to award compensation to the tune of €111 million for the breach of human rights. KURT SANSONE ksansone@mediatoday.com.mt Government will appeal court decision awarding €111 million compensation to NBM shareholders