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maltatoday, SUNDAY, 9 AUGUST 2015 6 News CONTINUED FROM PAGE 1 The Mal- tese government's contention is that when the National Bank of Malta fell victim to a depositors' run in December 1972, its shares were worthless. But the Constitutional Court in its judgment of 2014 confirmed that the shares had value despite the temporary liquidity problems and that shareholders are entitled to compensation. The National Bank of Malta was hit by a run on its reserves back in December 1972, but its original shareholders claim the Central Bank of Malta had refused to act as lender of last resort, and even blocked attempts by Barclays Bank to loan money to the NBOM. In four days, the run on the bank saw enormous withdrawals total- ling at least Lm2.5 million. Around 350 shareholders lost their shares after they were forced to sign them over to the government, without compensation. Prime Minister Dom Mintoff had threatened in parliament that if the bank's directors refused, he would remove the limited liability of the bank's shareholders, extend it beyond the bank's capital to their personal assets, and withdraw the four million pounds in parastatal funds which were deposited at the bank. Mintoff used the occasion to leg- islate a Council of Administration to take over the bank. Sharehold- ers were forced to sign over their shares to the state without com- pensation overnight. In an address to the nation on TV on 11 Decem- ber, Mintoff compared himself to a cowboy "firing a shot in the face of a cattle stampede". But the Maltese courts have now recognised that despite the liquid- ity problem the NBOM faced, "a benefit was reaped from the shares that were handed over without compensation, and used to the ad- vantage of the Council of Adminis- tration, and eventually to the Bank of Valletta" – and that therefore the bank was not insolvent and still had considerable market value at the time. In fact, Curmi's appraisal is that the €325 million claim "constitutes a fair and reasonable compensa- tion" for the Lm7 million which he says was the net asset value of the bank in 1973. But the government's consult- ants – former IMF consultants Piero Ugolini, Richard Nun, and Larry Chilton – have insisted in a report to the courts that Curmi's assessment is based on "unrealistic and invalid assumptions". "This fails to recognise the suc- cess of BOV was due primarily to the ownership of GOM which restored public confidence in the bank by fully guaranteeing all de- posits which NBOM would have been unable to do," they claim. They also say that it was the Na- tional Bank itself that suggested that the government take over the bank. "NBM officials indi- cated that it could be possible for GOM to take over the bank with- out putting up money by giving the shares nil value. Although the Prime Minister was reluctant to resolve the situation in this way, the option would be considered if so proposed." They said the "history of self- serving and imprudent manage- ment practices" endangered the bank through non-performing loans that increased bad debts. "Government had no choice ex- cept to intervene in order to pro- tect the depositors and creditors and to preserve stability of the broader financial system." Inflated bad debts Upon takeover, the Council of Administration produced a bal- ance sheet claiming a negative equity of Lm253,000, which the NBOM shareholders claim was achieved by excessively inflating the bank's doubtful debts. Curmi says the bank's own prop- erties were significantly underval- ued by the Council, no provision was made for the goodwill from its 27 branches across Malta and Gozo, and that provisions for bad debts were raised by 151% from Lm2.3 million to Lm5.9 million. This was based on a property in- dex created by the bank's staff on the collateral held on the loans is- sued by the Council, which claimed that villas, houses and apartments had fallen in price by 36.6% and the price of undeveloped land by 84%. This allowed the Council to raise the provision for bad debts. But by 1978, Bank of Valletta managed to reduce the bad debts by Lm4.3 million over a period of just five years. Indeed the Bank of Valletta im- mediately began to register profits (as in fact the NBM had for years – 1972 having been its most prof- itable year ever); and not only did the previously 'worthless' assets suddenly acquire considerable value for its new owner, but debts that had previously been classified as 'unrecoverable' were nearly all recovered in full. On its part, the government's consultants are insisting that 1971 was the tail-end of a boom-and- bust period in which a sharp drop in prices was still evident in 1972, according to sample surveys car- ried out by the Central Bank. Property values Another evaluation of proper- ties held by the National Bank of Malta and taken over lock, stock and barrel by the Labour govern- ment in 1973 – the BOV head of- fice in Republic Street, Valletta; the Marsa BOV branch at Cross Road; another Marsa property; the BOV branch on the Sliema Strand and the former Tagliaferro Bank on High Street; and a Gozo branch in Victoria, today comprise a total of €4.4 million. The architect's appraisal was car- ried out by Godwin Abela and sub- mitted to the courts. Long compensation battle The Nationalist government had offered representatives of the Na- tional Bank of Malta's sharehold- ers €25 million for the shares they signed over under duress on the eve of the 2013 election. Former finance minister Tonio Fenech had said that in a second attempt to close a 40-year saga, the Nationalist government's offer had been turned down by the share- holders' representatives. "Any government should see what the fair value of the shares are before a court gets to decide how much compensation the National Bank shareholders will get," he had told this newspaper. In 2005, informal discussions between Investments Minister Austin Gatt and the National Bank shareholders were held over a reported Lm8 million (€20 mil- lion) compensation package to the shareholders. Milica Micovic, a representative of the NBOM shareholders, had told MaltaToday the amount was "risible". mvella@mediatoday.com.m Government consultants tell court NBOM shares 'worthless' despite court decision The courts recognised that the NBOM takeover benefited Bank of Valletta when the shares were handed over without compensation A 40-year saga is entering its final chapter for the Nationla Bank of Malta's shareholders and their heirs The National Bank takeover in 1973 was a harrowing example of Dom Mintoff's uncompromising style of government