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Bank of Valletta fined €350,000 in first property fund investigation
MFSA fines Bank of Valletta and subsidiaries €350,000 over breach of investment restriction | Bank says it will appeal decision.
15 June 2011, 12:00am
Matthew Vella
Matthew Vella
3 min read
Updated at 6:23pm with BOV statement
Bank of Valletta has been fined an administrative penalty of some €350,000 for breach of investment services rules over the administration of the La Valette multi-manager property fund, which lost €50 million in value. The bank said it will be appealing the decision.
The Malta Financial Services Authority today announced an administrative penalty of €149,821 on Valletta Fund Management – BOV’s investment arm – as managers of the fund over its “failure to act with the level of care and diligence required of licence holders with regards to the conduct of their business.”
VFM was found to have wrongly applied its own investment restriction which prohibited the fund from investing in other real estate funds whose debts were leveraged at more than 100% of net assets: meaning, having too much debt to survive a downturn in value.
Specifically, it was a €17 million investment in the Belgravia European Property Fund - that was geared at over 100% - that is suspected of having lost in excess of 90% and is today estimated at €1.3m, while other investments originally valued at some €47 million fell to €18.5 million.
The regulator also said VFM did not “properly monitor its delegates” – Valletta Fund Services and Insight Investment Management – on applying the restrictions, and failing to maintain adequate records.
No mention was made of the fact that the property fund was being managed by two subsidiaries, VFM and VFS, of the actual custodian of the fund, Bank of Valletta.
BOV was itself fined €197,995 for the wrong application of the investment restriction, and for not making accurate reporting in the property fund’s annual financial reports for the years 2006-2009.
In a statement following the MFSA notice, BOV reiterated that its views of the gearing restriction were different from that of the regulator.“The determination received today, though disappointing, is not wholly unexpected,” the bank said. “BOV and VFM remain firmly of the view that the conclusions of the MFSA are wrong in fact and at law, and will be filing an appeal on the MFSA decisions.”
It added that the impact of this differing view on the investment restriction has already been fully taken into account in its compensatory share offer price of €0.75 per share, which comprises 24c in compensation. The amount was reached by basing the fund’s performance against two independent external low geared fund reference points.
“In any event, BOV and VFM maintain that, even if the view of the MFSA were to be upheld, the offer made by BOV fully compensates the investor for any loss incurred as a result of any incorrect application of the investment restriction, which is denied.”
The MFSA is still in the process of investigating two major complaints: one of misselling the property fund to clients who were not experienced investors as defined by the law; and allegations of access to price-sensitive information.
Bank of Valletta has rejected suggestions that bank employees and a property fund director had access to price-sensitive information on the La Valette multi-manager property fund before it was suspended by the bank.
Allegations raised in judicial protests by the fund’s investors and Finco Treasury Management claim that €13.4 million in shares, or 16% of the fund, was withdrawn by investors aware of the worsening state of the property fund.
BOV has announced a compensatory 75c share offer to some 1,000 investors in the fund. But Paul Bonello, the stockbroker who kick-started the series of judicial protests against the bank, has called the offer “morally dishonest”.
Bonello said the 75c offer was positive as a first step, but that the bank was presenting the property fund investors with a “take it or leave it offer.”
Matthew Vella, a freelance journalist at MaltaToday, was formerly executive editor at Malt...
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As far as I am aware, blogging does not infer that one has an agenda...simply that one has a view, clearly in my case different to yours. I cannot understand by what stretch of imagination you are deeming my comments as bullying on which I beg to differ. I am free to comment (not give advice as you nonchalantly indicate) as I feel like and if the differing views of others disturb you....well live with it as this is a free world.
As to the Euro 0.75c offer, I invite you to do the following:
(a) Have a look at the HSBC Property Fund performance (a low geared fund) and you will note that the fund has lost over 30%.
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(b) Take the trouble like I did and do a simple google search to have a look at a number of similar low geared property funds (trustnet.com is a good source). You will note that low geared funds have in their absolute majority lost between 25% to 40% over these last 5-6 years some of which are still suspended to date. Funds managed by the likes of Aviva, Credit Suisse, Morgan Stanley etc...high profile names.
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(c) Having undertaken the above then ask yourself why the BoV's offer should be higher than that being provided by BoV when this voluntary compensation is reflecting the position taken by the MFSA on the gearing issue despite the Bank's (and seemingly the industry's) diametricallly opposite position in this regard.
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(d) Lastly, ask yourself, objectively, why you as a shareholder of the fund should be treated differently, bar the gearing compensation, of course from the investors in the HSBC Fund or any other investor as for that whose investment is still in negative territory post the 2008 crisis.
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In conclusion, clearly we should agree to disagree on this matter. Ultimately you are free to decide as you deem necessary.....and here I leave you with Eleanor Roosvelt's quote....."the choices we make are ultimately our own responsibility".
Mark Fenech •
But how on earth you say you have no agenda, and you are so sure that the offer of BOV to repurchase our shares at €0.75 per share is the proper one.
How can we accept BOV's version when throughout the saga we only heard lies and lies and again more lies, until they came up with the above offer. The first vresions of BOV were that they were correct and everybody else was wrong. Now they have been fined for not acting as a proper Custodian to the Fund.
Then you turn up without anybody asking for your advice and you tell us what we should do, and you declare that you have no hidden agenda. There are plenty of maltese proverbs who advice you to do things differently - "pjaċir mhux mitlub nofsu mitluf" - "tidholx bejn il-basla u qoxrita għax inkella tispiċċa b'riħiltha". So either declare your agenda or otherwise you should not stop trying to bullying us.
BOV's goodwill has already suffered and if we take them to court, they will continue to suffer more damages with their clients, so this time give the advice to BOV to settle this matter out of court to avoid further damage to their goodwill and their financial status as they would have to make a huge provision in their accounts until a decision as arrived at.
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Mr Mifsud, I have no agenda whatsoever and I am simply laying out my views on the matter in a structured and reasoned manner. I fail to understand your antagonism and led comments to differing views.
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Anyone with a sense of balance understands that capital markets have their risks. Clearly what in my view you are seemingly failing to understand is that all the gearing issues and the belgravia funds you refer to in your email are fully addressed in BoV's offer as the Euro 0.75c would be effectively the price of the fund as of today had it not been highly geared.
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The position that you seem to be expressing is aimed at securing your capital back as if this investment was a capital guaranteed product. Well you know, if you believe that any court will remedy the downside of the market, what can I say its your decision, your time and your money.
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Hypotethically, if one were to go to court and the court would find that BoV did not apply the gearing in a proper manner, confirming MFSA's decision, the court would order a remedy in that the performance of the fund is reviewed since its launch date to reflect a low geared fund. I invite you to guess the outcome of this exercise..........Euro 0.75c per share.
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Conversely, the court may find that MFSA's decision on the matter was actually not correct and upholds BoV's interpretation....well then any other comment is superfluous.
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Lastly, what I fail to understand is why all the HSBC Property Fund shareholders who have sufferred around a 30% loss are not pursuing your same course of action.
Mark Fenech •
Mr. Cassar is another disciple of Mr. Chalmers and he failed to declare what is his agenda on this case, so he cannot be taken seriously.
My address was on the auditors of the Funds irrespect who they are. Regret my error for they are PWC and not KPMG.
MFSA has taken no less than two opinions from international financial institutions on the interpretation of the gearing in accordance with the prospectus and both of them came out with the same opinion as declared by the investors through FINCO. So please stop harbouring on this issue which is now dead and buried as a decision has been taken by the Regulator. Now BOV are once again trying to bullying us by saying that they will be taking the matter to court.
When we received BOV offer we were told that they did not want to have a long legal matter appearing in their books, as it would damage their goodwill. Now, they have changed their previous strategy and want to go for a long legal action. They are doing that, instead of resigning from their posts, which they should have already done, if they are true professionals.
The MFSA is not stating what BOV has told us when the litigation started, for at that moment they told us to get fxxxxx. It was only after we put pressure on MFSA to investigate and after BOV became aware of the outcome of the MFSA investigation that BOV changed their tune. Come on leave us alone if you do not have any interest on this case.
We are pursuing our funds for BOV did not act as a proper custodian on our funds, besides they invested our money with the criminals of Belgravia without even having seen the financial accounts. Our funds were practically stolen, either in UK and/or in Malta. There are no other words to diescribe why the BOV Property Fund suffered such a huge loss.
Have you ever attended an AGM to see how BOV tried to impress us that things were very clear and there were no problems and it was just the market volitily. How can we ever accept BOV version after all the lies we were told in these meetings.
Leave alone Mr. Cassar, or declare your hidden agenda. Hope you are not one who managed to withdraw his funds for you had inside information which was restricted to some lucky ones.
If you are not personally involved, there is no reason why you should go in between "il-basla u koxrita".
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Some bloggers simply rush to put pen to paper and objectivity is not in their dictionary but theirmindset is simply a militant driven one. Rather than using blogging as an opportunity to share an objective view of the matter being discussed they start dishing out arguments which are clearly devoid of any sense. This is unfortunately the main reason why blogging is becoming a can of trash.
@ Tarcisio Mifsud - Please get your facts right:
(a) The MFSA report simply confirms what the Chairman of BoV has stated a few weeks back in that the MFSA and BoV are disagreeing on the gearing interpretation. BoV have in fact communicated that they will be appealing the position taken by the MFSA ...of course they have every right to do so if they strongly have a case to make.
(b) KPMG are not the auditors of the SICAV and not connected in any way with BoV. To the contrary they are the auditors of HSBC if anything. So please get your facts right before keying such statements.
(c) BoV's proposal caters for the gearing issue and albeit the Bank did not have any obligation to come out with this offer as a result of its position on this issue, the Bank felt the need to propose a fair and transparent solution to compensate investors for this gearing issue on the basis of MFSA's view on the gearing restriction in the absence of which investors would have resorted to go to court, with the risk of losing such a case if BoV's contentions are proved correct in a court of law. I cannot understand how investors, the likes of Tarcisio Mifsud, are also seeking compensation for the negative performance of the market. Interesting to see if HSBC property fund investors with over 30% of their investment value wiped out by the market, will do the same. This also applies to anyone whose investment value turned negative due to the 2008 crisis.
(d) It is my view that no investor is due his money back due to negative market performance unless, as 0454755m correctly said, they have a case of misselling. In the financial services industry, misselling cases are treated on a case by case basis. Just to clarify, misellling does not mean that because an investment has gone down in value, you have been mis-sold this investment. Rather one needs to produce concrete evidence in this regard. What really irks me is that for a good two and a half years no-one seems to have complained on this property fund - Tarcisio Mifsud included.
(d) As to the redemptions issue, I would wait for the outcome of the MFSA investigation. Clearly, from the communication issued by BoV in the media, the redemptions in the fund were on average in line with redemptions in other funds. Clearly in 2008, statistics for the great majority of European Funds, property funds in partiular expereinced negative (out) flows. A quick google search on fund redemptions in 2008 will confirm this. In effect redemptions do not have any implication whatsoever on the value of a fund as the fund's performance is purely dependent on the value of its assets and not on investments or redemptions to and from the Fund. So this matter cannot be correlated to a fund's performance.
Finally I hope the above is deemed as a constructive contribution to this discussion. No hard feelings (Tarcisio) but please let's all ensure that blogs are not driven by emotions but rather by our grey cells!
owen sammut •
BOV is saying that their offer to the investors in the fund compensates for the maladministration for which the MFSA are holding BOV responsible. BOV is side-stepping the issue related to the other 2 MFSA investigations related to mis-selling and alleged 'Insider Trading'. If the product was sold to BOV clients who should never have been sold this product the issue relating to the comparison of the Fund's performance to low-geared similar Property Funds is not relevant. The way I see it is that such investors have a very strong case for refund of the whole of their capital plus interest.
Furthermore if it is proved true that BOV insiders abused 'price sensitive' information for their own and their family's benefit how can one expect these investors to have their money back (plus a profit in some cases) without giving the same opportunity to all the investors in the Fund who did not have access to this information.
BOV are in a tight fix and the earlier they settle this matter the better it would be for the bank and its shareholders.
Obviously the position of the Board, the Chairman, the CEO and all top Management of BOV and VFM has become untenable and only a new Leadership will be able to sort out this mess. The present Leadership has too many vested interests in this matter.
owen sammut •
Apparently there are some BOV lackeys acting on behalf of the Bank at the same time hiding their true identity. I am also a shareholder in BOV but I agree that all those responsible for maladministering the fund must get what they deserve. The pity is that the shareholders of BOV at the end of the day have to pay the bill. BOV and its subsidiaries did many wrong things and the shareholders of BOV must not forget this at the next AGM.
At the end of the day the Property Fund Shareholders will be proved right. The fact that the MFSA has already fined BOV for malpractice will strengthen the case of the shareholders of the Fund in a Court of Law. What should be frightening for everyone is the lack of Corporate Governance and Risk management in a Institution such as BOV.
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Mr Mifsud If you read well what I wrote I NEVER told you to shut up but that I was sincerely sorry for your loss. Shut up went for that goof of Sloot.I can assure you that I am so tiny that it would be impossible for me to pressure anyone as they would surely not feel me and I am no friend of Mr Chalmers.After all, you have all the right to go to Court. Is anyone holding you back? NO.
Mark Fenech •
What a face Mr. Ernesto. Another one who is not able to show his appropriate name. Another Mr. Chalmer's yesman and he wants me to shut up.
Another one with a hidden agenda, another one who perhaps put pressure on the shareholders of the property fund and then BOV did not adhere to the provisions of the prospectus of the fund and our investments became peanuts.
We invested because we wanted to get a good return, but the good return only lasted for a few months, for the protector of our investments, allowed the Property Fund Management to move out of the provisions in the prospectus and we lost millions. We did not lose millions because of the market volatility, but because BOV invested our funds with criminals, when they did not even see the financial accounts of the Belgravia Funds.
It was only after, we the small shareholders of the fund, sustained our position and through FINCO, we managed to produce the required evidence that MFSA started to take notice. The first replies from the BOV on our official letters was to shut up. Mr. Ernesto you are repeating the same bullying, but I will only shut up when I get all my money back plus the interest due to us.
Come on Ernesto be brave, show us your full name, so that we shall know what agenda do you have. Perhaps the same as that of Mr. Honesty.
Mark Fenech •
Ok that's it Mr. Honesty. Your agenda is clear as your shares would suffer and you would not get any divendents on your BOV shareholding. On that score you are correct to try to persuade us to take the BOV option, but that is not our fault that we want what is due to us. Ask for the resignations of those involved, that is your option.
KPMG are the auditors of the Property Fund and I do not need to say more.
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Mr Mifsud, whilst being sorry for your loss, I am sure you knew that this type of investment is volatile. When the going was good for this fund no one was held from selling his shares including you if at that time you were already an investor. After all, BOV quantified the fund's underperformance and paid out a reasonable share offer. Price in question is better than present value of HSBC's similar fund.
Sloot - you have every right not to bank with BOV but no right at all to throw dirt towards this Institution. So shut the up please.
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Tarcisio, i said I am a shareholder, (of BOV, not the fund) and the auditors for BOV's accounts are not KPMG, they are HSBC's. and again , no hidden agenda, believe me
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Dak li jigri bil hard selling tatics li juza l bank. Il front office people tal bank huma sweet talkers u xejn aktar. Mohhom biex ibellu l investimenti basta jilhqu targets. Id disgrazzja hi li certu nies li ma kinux juzaw hard selling gew imwarba, maqbuzin fil promotions u bla zidiet fis salarji. Issa zejt tela f wicc l ilma. Issa min hu responsabli ghal dan il fjask se jaddi board ta dixxiplina/ Kemm se tiswih il bank din il froga? Se ikun hemm rizenji? Il ministru tal Finanzi ghal fejn qieghed kwiet? Jew kollox se itir mar rih ghax certi nies kbarat tal VFM huma blue eyed bys
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tafdawx il b.o.v jien hriegt il flus kolla ghax majafux xinuma jamlu.
jekk il b.o.v irid jamel gambel juza flusu u mux flus inies li vera batew ghalijiom.
il min iridu jejnu imma nies li vera kellom bzon ghal kawza gusta warbuom.
issa bdew jilabu bil; kliem jalla tmoru hazin hali tispicaw bla xol dawk li kinu involuti fil kumidja ta sena.
Mark Fenech •
Issemmiex il-KPMG li jmisshom jistħu li ħallew l-accounts tal-BOV joħorġu minngħajr ma jkunu kwalifikati meta kien hemm diġa proċeduri legali kontra l-BOV.
Mela l-MFSA ħaddet żball meta waħħlet lil BOV somma kbira għax kiser din il-provizzjoni u tinsiex l-MFSA ħadet żewġ opinjonijiet minn istituzzjonijiet finanzjarji barranin biex ikkonfermat li l-BOV kien kiser gearing kif kien jidher fil-prospectus tal-Property Fund.
Jekk inti shareholder, kull ma trid tagħmel aċċetta dak li qiegħdin joffrulek il-BOV u ħalli lilna niġġieldu għal dak li huwa bi dritt tagħna u tinsiex jekk ma turiex minn inti, xorta nibqa nsostni li għandek aġenda moħbija.
Jekk inti kuntent, mela ma għandek għalfejn tidħol fiha din il-materja.
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No, not Mr Chalmers, but a shareholder. The prospectus said only that borrowing should not exceed 100% of NAV. As KPMG reported, BOV's interpretation was correct. That's all I want to say.And believe me, no hidden agendas, but truth. Getthe proof for the accusations like BOV did with KPMG in their defense and then if overriding, I will change my belief and stop this. Have a good evening.
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No, not Mr Chalmers, but a shareholder. The prospectus said only that borrowing should not exceed 100% of NAV. As KPMG reported, BOV's interpretation was correct. That's all I want to say.And believe me, no hidden agendas, but truth. Getthe proof for the accusations like BOV did with KPMG in their defense and then if overriding, I will change my belief and stop this. Have a good evening.
Mark Fenech •
Hallina Honesty jaqaw inti Mr. Chalmers jew. Iva hekk qalulna l-BOV? La kien it-tort taghhom li tlifna l-flus, issa jridu jħallsuna lura b'imgħax u jekk inti trid turi kemm inti għandek raġun ikteb taħt ismek, ħalli naraw l-agenda moħbija tiegħek.
Mela tgħid li l-BOV tagħawna spejga ta' kollox. Il-BOV għadhom sa issa jgħidu li mhux qiegħdin jaċċettaw li kellhom tort, mela għaliex l-MFSA waħħlithom dawk il-multi kollha u kkonfermat li ma kienu veru protetturi tal-fondi li ġejna mġielin ninvestu.
Le ma huwiex veru li l-BOV mexa mal-prospectus, issa għandha konferma iswed fuq l-abjad li l-gearing li kien hemm fil-prospectus ġe maqbuż, u allura għaliex għandna naċċettaw anqas milli nvestina meta ma kienx it-tort tagħna li l-Property Fund mar il-baħar. Mar il-baħar bil-kaġun. U tinsiiex Sur Honesty li baqa żewġ rapporti oħra x'toħroġ l-MFSA.
Joseph Sant •
I'm not saying that BOV did right or anything. But do you realise that this is over a third of a million euros in what is effectively a tax payable to government - money that would otherwise have come to us petty shareholders. What will the MFSA be doing with this money? Will it be used to compensate the pensioners and other small investors who lost more than half their savings in this botched property fund?
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The MFSA report just stated what BOV are telling the property fund shareholders as was stated in their letter. There is a discrepancy in reasoning,but whilst BOV proved it through a report by KPMG, nobody else got such official counteracting proof, just accusations.
By the way, the investments were made in line with the prospectus, its the definition in the prospectus that is now being played around with.
In any case, the BOV offer satisfies this issue in any case and as such nullifies the importance of this report.
Let's stick to the facts and nothing else and on using some grey matter in our brain, one can see that BOV was not wrong and having no wrongdoing in the matter.
Mark Fenech •
Well done Mr. Paul Bonello, you were right from the start and BOV were wrong and were the culprits, which resulted in the huge losses on the funds we were pressed to invest.
Now BOV should withdraw their rediculous offer and give us in full what is due to us. The investments from this fund were not made in accordance with the prospectus and therefore there should be no excuses for us shareholders to receive our funds back plus interest due to us.
I want also to see Mr. Chalmers and those involved to resign from their posts if they really want to act as gentlemen and accept their errors.
The same should apply to the auditors who never even felt the need to have the BOV accounts to be qualified. the partner of the auditing firm should resign aswell as he should have insisted with the bank to operate with prudence.
Must conclude by also giving thanks to the opposition members of parliament mainly Dr. Charles Mangion and Hon. Evarist Bartolo, who it was through their pressure that MFSA had to issue the first reports and their decisions, otherwise they would have continued to hang us in the air without knowing where we stand and with BOV bullying us to accept their inadequate offer.
Anthony Haidon •
One down, two to go.
