Finco replies to BOV: bank unwilling to shoulder responsibility

Stockbroker Paul Bonello has reacted to a statement by Bank of Valletta chairman Frederick Mifsud Bonnici that the bank would not meet unreasonable claims from investors who bought Lehman Brothers perpetuals, that the bank remains "unrepentant, arrogant, high-handed and unwilling to shoulder its responsibilities to these investors."

Bonello, of Finco Treasury Management, has called on the financial regulator to take court action against BOV and enforce its recommendations to the bank to pay compensation to investors who lost their money in Lehman perpetuals and other securities.

In December 2011 BOV was found at fault for misselling the perpetual securities to its clients, amongst them 17 Finco clients. The MFSA said BOV had given misleading advice to clients when putting across these securities as "bonds" when they were in fact high risk irredeemable, non-voting, non-participating, non-cumulative preference shares. 

In a comment, Bonello said BOV chairman Frederick Mifsud Bonnici "unrepentantly" called the securities "bonds" , "in defiance of what is manifest and of what the MFSA has decided."

"The Bank chairman is referring to the BOV clients who invested on BOV's written advice in Lehman and other perpetual securities as having 'gambled'. This is an own admission by an MFSA licensed holder that this licensed holder does not advise clients how to invest but how to gamble. 

"We believe that this statement on its own should be enough reason for the withdrawal of the investment services licence by the MFSA as a serious regulator.  Such an irresponsible statement is just no on Malta's largest bank," Bonello said.

Bonello pointed out that Mifsud Bonnici, formerly a partner of PricewaterhouseCoopers, had not mentioned that PwC confirmed to BOV and the MFSA in a report commissioned by the bank, that the securities were not bonds but perpetuals.

While Bonello said Finco will take legal action on behalf of its clients to secure compensation from BOV, the MFSA yesterday said it would first exhaust all possible avenues to achieve restitution, before going to the courts.

Mifsud Bonnici today said that the bank could not meet unreasonable compensation claims from the clients who had filed compensation claims.

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.