Issue link: https://maltatoday.uberflip.com/i/712794
maltatoday, SUNDAY, 17 JULY 2016 10 News Long slog ahead for National Bank shareholders in compensation battle MATTHEW VELLA ALMOST 12 months since they presented a formal claim for €325 million in com- pensation for the forcible nationalisation of their private bank, the National Bank of Malta shareholders are still way behind any foreseeable conclusion to their 43-year battle. In 1972, the NBOM was taken under ad- ministration by the Mintoff administration after a run on its deposits and the refusal of the Central Bank to prop up its reserves: within a year, the bank was to become the Bank of Valletta. Its 49 shareholders, amongst them mem- bers of the Maltese nobility whose banks were amalgamated to form the NBOM, were in 2014 finally recognised by the Con- stitutional Court as having had their rights breached by being forced to surrender their shares, overnight: a harrowing example of the late Dom Mintoff's uncompromising, and heavy-handed style of government. But their claim for damages, drawn up by retired banker Anthony R. Curmi, was met with a disparaging reception by the gov- ernment, which insists that the National Bank shares had no value whatsoever when the NBOM was nationalised. The government retains a 25% share- holding in Bank of Valletta. At this stage, lawyers for both sides are engaged in a courtroom conundrum to ne- gotiate the demands, but a next sitting is now set for October because of disagree- ments on points of principle. In the last sitting in June, both sides failed to nominate experts who will ex- amine the claims before the court gets to decide whether the bank had been a going concern at the time of its nationalisation; whether the valuation will be based either on the day the bank was nationalised in De- cember 1973, or before; and how to handle the National Bank's bad debts at the time. Unless the two sides agree on a way for- ward, it will be Mr Justice Joseph Micallef to appoint a panel of experts who can de- termine the terms of reference on these points. 'Worthless shares' The Maltese government contends that by the time depositors withdrew an enor- mous Lm2.5 million from the National Bank over four days in December 1972, its shares were worthless. Around 350 share- holders lost their shares after they were forced to sign them over to the govern- ment, without compensation. Mintoff used the occasion to legislate a Council of Administration to take over the bank. Shareholders were forced to sign over their shares to the state without com- pensation overnight. In an address to the nation on TV on 11 December, Mintoff compared himself to a cowboy "firing a shot in the face of a cattle stampede". But the Constitutional Court in its judg- ment of 2014 confirmed that the shares had value, despite the temporary liquidity problems and that shareholders are enti- tled to compensation. It said that despite the liquidity 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 Administration, and eventually to the Bank of Valletta" – and that therefore the bank was not in- solvent and still had considerable market value at the time. In fact, Curmi's appraisal is that the €325 million claim "constitutes a fair and rea- sonable compensation" for the Lm7 mil- lion which he says was the net asset value of the bank in 1973. On the other hand, the government's consultants – 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 success of BOV was due primarily to the ownership of GOM which restored public confidence in the bank by fully guaranteeing all depos- its, which NBOM would have been unable to do," they claim. They also accused the bank of having had a "history of self-serving and imprudent management practices" which endangered it through non-performing loans that in- creased bad debts. "The government had no choice except to intervene in order to protect the depositors and creditors and to preserve stability of the broader financial system." Inflated bad debts Upon takeover in 1973, the bank's Coun- cil of Administration produced a bal- ance sheet claiming a negative equity of Lm253,000, which the NBOM sharehold- ers claim was achieved by excessively in- flating the bank's doubtful debts. Curmi says the bank's own properties were significantly undervalued by the Council, no provision was made for the goodwill from its 27 branches across Mal- ta and Gozo, and that provisions for bad debts were raised by 151% from Lm2.3 mil- lion to Lm5.9 million. This was based on a property index spe- cifically created at the time, 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. And yet by 1978, Bank of Valletta man- aged to reduce these bad debts by Lm4.3 million over a period of just five years. Indeed the Bank of Valletta immediate- ly began to register profits (as in fact the NBOM had for years – 1972 having been its most profitable year ever); and not only did the previously 'worthless' assets sud- denly acquire considerable value for its new owner, but debts that had previously been classified as 'unrecoverable' were nearly all recovered in full. Confidentiality before transparency? 45% say so JAMES DEBONO 45% of the Maltese believe that informa- tion about state aid received by companies should remain confidential "as it is a mat- ter between public authorities and compa- nies". The 45% total in Malta compares to the average 26% of respondents in all EU 28 member states who expressed the same view. This emerges from a Europe-wide survey conducted by the European Commission in June 2016. In all countries, a majority of respond- ents disagree that information about state aid received by companies should remain confidential. In this study state state aid was defined as "support in any form given by public authorities at any level to selected compa- nies." Respondents in Sweden (84%), Spain (78%), Slovenia (77%), The Netherlands (77%) and Greece (76%) were the most like- ly to disagree, while those in Malta (49%), Poland (52%) and Romania (55%) were the least likely to. But paradoxically when asked whether citizens should have full information about state aid to companies, 89% of Maltese re- plied in the affirmative. Moreover 69% of Maltese believe that the most effective way of ensuring transpar- ency on state aid is that "the information is automatically made publicly available". The paradox of wanting full access to in- formation as well as considering it should remain confidential is evident in a number of countries. For example, at least a third of respondents in Malta (45%), Austria (36%), Poland (36%), Romania (34%), Slovakia (34%), and Italy (33%) agree that informa- tion about state aid received should remain confidential, even though more than three quarters in each of these countries agree citizens should have full access to informa- tion about state aid granted to companies. The report attributes this to the complex- ity of data protection issues. When asked in which sector there is a need for more transparency on state aid, the sectors most mentioned by the Maltese were energy (50%) and health (64%) – two sectors which have been partly privatised under the tutelage of former health and en- ergy minister Konrad Mizzi. The paradox of wanting full access to information as well as considering it should remain confidential is evident for 45% of Maltese respondents in an EU survey 69% of Maltese believe the most effective way of ensuring transparency on state aid is to "automatically make it publicly available" The sectors in most need for more transparency on state aid were energy (50%) and health (64%) – two sectors partly privatised under Konrad Mizzi