Chalmers in eye of political storm over state’s role in Bank of Valletta property fund

Bank of Valletta has insisted it has taken action to change internal processes and introduce more stringent sales procedures, a spokesperson told MaltaToday, as the bank faced renewed attention following a €203,000 fine imposed by the regulator over the sale of its La Valette multi-manager property fund to retail clients.

Matters escalated onto the political stage this week after Opposition leader Joseph Muscat called for political responsibility to be taken over the property fund fiasco, which saw some €50 million in investors' savings obliterated in a property price crash, and strongly hinted at the removal of government-appointed chairman Roderick Chalmers.

Finance Minister Tonio Fenech refuted any suggestion that government interferes in a decision that was shareholders' to take in the AGM, and accused Muscat of harbouring strongman tactics towards the bank, in which government still has a 25.2% interest.

Even Alternattiva Demokratika is insisting that Chalmers should be made to resign, saying Fenech should have seen "the writing on the wall and assume political responsibility". AD has demanded the full release of the government's correspondence on the matter.

BOV was absent this week on breakfast show TVAM, where veteran economist Karm Farrugia - also a shareholder of the La Valette property fund - criticised banks that had moved out of their traditional roles of deposit-taking and lending, and into the fields of insurance and investment banking.

"What I was shocked at was their [BOV's] lack of honesty about the entire matter. Did it had to come to this stage where the MFSA had to order it to pay further compensation to shareholders?" Farrugia said on TVAM.

But Bank of Valletta has insisted with MaltaToday it had learnt its lessons since the 2008 and 2009 fallout. Chairman Chalmers has stuck to his original position that he has indeed accepted full responsibility.

"I need to deal with the situation - I owe it to the investors, the bank's reputation, our shareholders and our staff. I am accepting this responsibility - it is not in my character to walk away. I need to deal with these issues and with the here and the now," Chalmers said.

In describing the property fund as "a most unhappy experience" for the bank, Bank of Valletta said it was addressing the issue with a thorough review of its process and procedures, benchmarking them against best-in-class in other developed jurisdictions.

The MFSA has also appointed an independent professional services firm, at the expense of the bank, that will prepare a list of investors to whom the bank should offer further compensation.

But one of the Labour MPs who took up the political end of the investors' campaign, Evarist Bartolo, claims Chalmers enjoys the protection of the finance ministry.

"As an ex-PricewaterhouseCoopers partner, Charmers enjoys the unreserved protection and support of the finance minister, a career PwC executive himself prior to his ministerial appointment when he gave up all connections with the firm. The government will not proceed to act appropriately and replace Chalmers," Bartolo said.

Bartolo also criticised the fact that MFSA's third and final investigation into the La Valette fund should have been published at least 12 months earlier, before BOV issued its 75c share offer to the fund's investors. The bank's offer was then conditional on investors relinquishing any claims against it, something the MFSA has overturned in its latest decision which also forces the bank to further compensate investors to the tune of €1 per share.

"BOV and its close associates were subjected to six administrative sanctions in a matter of 13 months," Bartolo said. "All along Chalmers wanted us to believe the bank was correct and had not failed in its duties, and that all that was being said was just seditious propaganda meant to cause financial instability. He was just defending his own personal failures, as much as those of chief officers, past and present, the collective Pentagon of the bank."

In June 2011, BOV offered investors a conditional compensation offer of 75c per share after the La Valette fund was found to have lost some €50 million in value, prompted by a series of judicial protests against the bank in the name of the property fund investors by Finco Treasury Management. The MFSA later fined BOV and its investment arm Valletta Fund Management €350,000 over a breach of investment services rules. The MFSA then issued a reprimand to former La Valette property fund director John C. Ripard, for having sold his holding in the fund on the basis of insider information.