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maltatoday SUNDAY 10 DECEMBER 2017 12 News HSBC menu blunder that sparked Panama falsification ruckus MATTHEW VELLA IT was a bank manager's error on docu- ments intended for Keith Schembri to open an offshore company in Panama that sparked claims in the press that the Prime Minister's chief-of-staff had obtained falsified HSBC bank documents. The accusation was that HSBC reference letters used by Brian Tonna of Nexia BT, to send to Mossack Fonseca, hailed from the shuttered Attard branch of HSBC in 2013, when the branch had been closed for over a year. A court sitting last week on the defama- tion suit filed by Tonna against the Malta Independent's former director Pierre Portelli – now the Nationalist Party's media boss – revealed the error HSBC said had resulted in the 'Attard' blunder. "The reference letter's format is a com- mon one… but the person who issues it has to choose from the drop-down menu the branch's address they belong to. Attard is by default the first one in the menu, so the rela- tionship manager did not do his job properly and unfortunately the printed letter was is- sued with the first [branch] he found. That's the explanation," HSBC senior international banking manager Victor Muscat told the court. But the drop-down blunder was simple enough to spark the allegation that HSBC assessments of the reputation and business performance of Schembri, had been falsi- fied, since the Attard branch had in fact been closed in February 2012, over a year from the issuance of the letter in 2013. "The address does not come up automati- cally. The menu comes up, it starts from At- tard, and you have the rest of the branches in alphabetical order," Muscat continued. "Then you scroll down and choose. Now if you don't choose and you print it as is, it will choose the first one on the drop-down menu." As 'luck' would have it, it turned out that the Attard branch had been shuttered. The letter was retrieved from the Panama Papers data trove, leading to the allegation first made by journalist Daphne Caruana Gal- izia and then taken up by her host newspaper, the Malta Independent. When the newspaper repeated the allega- tions, HSBC announced a bank probe. Soon after, the bank said the Attard letters had been issued due to an administrative error within the bank's correspondence system and templates. A letter from commercial banking head Michel Cordina stated that the letters were "legitimately issued on [his] request in terms of standing procedures." Tempered by this clarification, the Malta Independent was first to back down, saying it was "now satisfied that in this matter no wrongdoing can be attributed to Mr Keith Schembri and Mr Malcolm Scerri, or their financial consultants Nexia BT." Caruana Galizia stood her ground, saying a former senior bank executive told her there was "no way this specific template could have been retained in the system, still less used 'by administrative error'." In a list of questions to HSBC she suggested that such an error would have to be commit- ted twice (two reports were issued, one for Schembri and the other for his business di- rector Malcolm Scerri), and then not noticing the Attard detail on the letter once printed. "Please explain how this was possible in a highly trained bank official." Property only remaining viable investment option, developers' lobby claims PAUL COCKS THE property market is practically the only remaining viable investment op- tion available in Malta, the president of the Malta Developers Association has claimed. Sandro Chetcuti told MaltaToday that it was no surprise that the market was booming, especially since contractors – seeing their profit margins fall substan- tially – were choosing to develop property themselves as well. "Property is practically the last viable in- vestment option in this country, and more people are choosing to invest even their life savings in the market," he said. He added that contractors' profits had fallen steadily over the past few years, in part due to the lack of workers and the high wages being demanded by the remaining workers. This was leading contractors to buy property themselves and develop it, main- taining control over the property and earning more than they would when they merely built the property for another de- veloper. Land prices were therefore rising, creat- ing a domino effect across the entire in- dustry, Chetcuti said. Developers, real estate agents and even the authorities tend to agree there is cur- rently no indication of the local property bubble bursting any time soon, but they also acknowledge the market is showing signs of slight overheating. And some are worried that unless the in- dustry takes measures now, the overheat- ing will eventually – but surely – reach boiling point and burst the bubble. Professor Alex Torpiano, Dean within the Faculty for the Built Environment at the University of Malta, told MaltaToday that it is useless to merely say that there is no property bubble or that it will not be bursting any time soon. "In all other systems and in markets abroad, the presence of a bubble was only identified once it burst," he said. "To say there's no bubble is a bit shortsighted and we should instead be talking about the temperature of the market and how we should tackle this overheating that has been acknowledged." A KPMG report on the construction industry and property market, commis- sioned by the Malta Developers Associa- tion and published last week, noted the slight overheating in the market, attribut- ing it mostly to the high demand for rent- al units and the increase in rental prices. The report also noted that the rate of in- crease in property prices was higher than the rate of increase in salaries. "These two will eventually meet and that is what we have to look out for and pre- pare ourselves for," Torpiano said. "May- be we should accept a 2% market growth rate rather than 5% if this would mean more stability and a steadier growth." This idea – anathema to developers and investors – has found a lot of support in many quarters, including the Malta Em- ployers' Association and former Bank of Valletta chairman John Cassar White. Chetcuti insisted that the KPMG report had confirmed there was no property bub- ble in the local market, a claim also sup- ported by economist Prof Gordon Cordina and an independent analysis carried out by the Central Bank of Malta. "Let us not forget that development is restricted to about a third of the country's land mass, and rightly so," he told Malta- Today. "We agree fully about these restric- tions and have advised and encouraged the government not to expand any of the ex- isting schemes." Chetcuti contends that the property market was seeing unprecedented growth mainly because of the rental market due to the huge influx of foreign workers, but also because of an increase in the demand for rental units by single parents and young people. With regards to the warnings of market overheating, he said that there were meas- ures that could be taken to ensure this did not lead to a bubble burst. "To keep the market healthy, we must ensure that there are not too many major projects being implemented concurrently so as not to saturate the market and end up with greater supply than demand." Chetcuti said it was imperative to keep an eye on the demand. "We have advised the government on the need to promote more projects geared towards providing rental units for single parents and young people, who might not afford to buy, but would be seeking to rent," he said. Such rent-only projects, he said, would need to be approved in different localities, as had been done in Msida and the areas around the university. "Such development would need its own policies and regulation, but developers would also know that the projects would only include rental units, without the pos- sibility of putting any parts up for sale." What is a housing bubble? A housing bubble is a run-up in housing prices fueled by demand, speculation and exuberance. Housing bubbles usually start with an increase in demand, in the face of limited supply, which takes a relatively long period of time to replenish and increase. Speculators enter the market, further driving demand. At some point, demand decreases or stagnates at the same time as supply increases, resulting in a sharp drop in prices – and the bubble bursts. Sandro Chetcuti (centre) is insisting that contractors' profits have fallen over the past few years