Finco taking legal action against BOV on Lehman perpetuals

Finco Treasury Management director Paul Bonello said his firm will be taking new legal action against Bank Of Valletta over the dispute between the bank and investors who lost savings they had poured in investments with the banks in Lehman perpetual securities, amongst other securities.

Bonello today called on the Malta Financial Services Authority (MFSA) to initiate legal action against BOV, hitting out at the sluggishness of the government in acting over the matter.

"The MFSA has a lot of competence but it lacks the courage to act upon words. I have no problem in saying that the MFSA has no character," Bonello said.

Bonello, who for the past years has spearheaded an investors' campaign to recoup losses from investments made with BOV, said negotiations between his company and the recently appointed BOV chairman Frederick Mifsud Bonnici had broken down abruptly after a positive start.

"Mifsud Bonnici told me that he was sensitive to the plight of clients," Bonello said, but added that any sense he had that Mifsud Bonnici was willing to solve the problem was soon washed away when BOV sent him a legal letter saying things would stay as they were.

Bonello also said he suspected "a hidden hand" had forced the bank to take step back and reject calls to honour its commitments to the investors of perpetual securities. "Calls to resolve the situation before the clients take legal action have fallen on deaf ears. A meeting I had with Prime Minister Lawrence Gonzi and finance minister Tonio Fenech proved to be futile, although he recognised that we are justified in calling for further action, but I never got any reply from him."

Bonello however said there was "one genuine person within the Nationalist Party" - referring to MEP Simon Busuttil - who had sent Gonzi a strongly-worded letter saying that he found it difficult to understand why the MFSA does not make use of its full powers to rectify damages suffered by clients following mistakes committed by enterprises.

Bonello also said that when BOV opened its Brussels branch earlier this year, Simon Busuttil had boycotted the event as a sign of protest at the bank's decision to withdraw credit facilities from Bonello and his wife.

According to Bonello, the MEP and special envoy to the Prime Minister wrote that action should be taken to avoid "the small fry who lost their life savings take on banks" while adding that the 200-strong staff at MFSA should protect the investors.

Busuttil, according to Bonello as he read out the latter, also warned the Prime Minister that it was the government's duty to protect small investors. Bonello did not publish the MEP's letter, since Busuttil asked him not to circulate it.

Bonello also thanked Labour leader Joseph Muscat and MP Evarist Bartolo for their continuous support and their commitment to resolve the issue. "Government has a moral obligation to resolve the issue. I appeal to the government to do its obligation towards vulnerable people which should be the mission of a Christian democrat party."

READ MORE Labour government 'will ensure serious negotiations' between BOV, investors.

Finco had previously filed a number of claims for compensation against Bank of Valletta on behalf of clients on the grounds of misselling and breach of MFSA investment regulations when BOV sold, amongst others, Lehman, RBS, HBOS, Lloyds and Barclays perpetual securities. On 5 January 2012, the MFSA announced it had imposed an administrative penalty of €175,174 on BOV for failing to ensure that the investment advice provided was appropriate and suitable for customers.

Bank of Valletta has however not yet restored these investors to the same financial position they were before they invested in the perpetual securities, as recommended by the MFSA but not yet complied to by BOV.

"Bank of Valletta continues to refuse to honour any of the MFSA numerous recommendations, in spite of the benevolent impression by new chairman Frederick Mifsud Bonnici," Bonello said, adding that the bank has told MFSA that its recommendations were "merely opinions expressed by the Consumer Complaints Manager. The Bank does not consider any of these recommendations as binding."

Bonello said the MFSA had failed to make use of the powers granted to it in terms of the Investment Services Act by taking BOV to court and order it pay the necessary compensation.

"Such recourse to the courts by the MFSA would spare elderly and inexperienced members of the public the trauma and expense involved in lengthy conventional court litigation, with the real risk that such senior citizens will not outlive the timelines normally involved in court litigation," Bonello said.

"The MFSA fails to explain its motivations for the exercise of its discretion not to use its statutory powers, which failure constitutes a direct affront to the legitimate expectations of Maltese citizens in the European Union that a public authority should exercise its statutory discretions reasonably, transparently and accountably."

Referring to the ongoing review of the La Valette multi-manager property fund, Bonello also said that there had been no concrete proposal from BOV to find a negotiated solution to this dispute.

"Finco continues to insist that the MFSA Directive of the 1 June 2012 does not do justice with the investors. The proper remedy was a total refund of capital invested (well above €1 per share) plus interest, and not an arbitrary Salomonic justice of €1 per share," Bonello said.

"Moreover the distinction between experienced investors and non-experienced investors on the basis of whether an investor entered into US$50,000 transactions or not is altogether artificial and does not address the substantive issues of who is an experienced investor or not.  The exclusion of execution-only investors from the benefit of the Directive is likewise mistaken because the MFSA did not make a substantive assessment of whether these execution-only sales were an abusive practice or not."