Bank of Valletta accused of 'low corporate governance' over property fund claims

Updated with reaction by Finco Treasury Management

Replying to questions by MaltaToday during the presentation of the bank's interim report for 2011, Chalmers claimed that the media had misreported the controversy revolving around investigations into the La Vallette multi-manager property fund.

The regulator’s investigations concerns claims that the fund lost some €50 million of their savings, citing breach of prospectus, the issue of false custodian reports by Bank of Valletta, complaints of mis-selling and allegations of improper use of price-sensitive information by Bank of Valletta insiders and employees.

BOV filed a judicial protest on 18 April, opposing the publication of the report because the MFSA is not empowered to go beyond its remit of investigation and divulge the contents of such an investigation. "MFSA are wrong... it does not have the legal power to publish investigation reports," BOV said in its protest. "Article 4 of Chapter 330 of the Laws of Malta does not give any power to the MFSA but just lists its functions."

However Chalmers claimed that the issue had been misreported. He said that it is “not true” that the report on the investigation had been completed. “This is not true. We have not received a report.”

He also said that BOV had never filed a judicial protest, arguing that the MFSA is wrong. Quoting the judicial protest, Chalmers argued that what BOV’s judicial protest was directed not at the MFSA, but at those who filed the original protest.

Quoting the judicial protest, he said the protest read: “huma zbaljati il-protestanti" (the claimants are mistaken).

Chalmers insisted that BOV was insisting that those who filed the protest were wrong, not the MFSA. “We said nothing whatsoever about the MFSA being right or wrong. If there is a conclusive report, we don’t have it,” he reiterated.

Finco Treasury Management, the stockbrokers' firm that filed a seminal judicial protest against Bank of Valletta over the depletion of investors' savings in the La Valletta multi-manager property fund, has claimed BOV chairman Roderick Chalmers's statements during the presentation of the bank's interim report "consisted of half-truths".

Finco director Paul Bonello said the MFSA had indeed submitted its reports to the bank, some of which are also close to completion. He accused Chalmers of playing with words and insisted that the financial regulator is empowered to publish its reports.

"Besides, investors who have made complaints to the MFSA have an indisputable right to individually receive 'the report' from the MFSA," Bonello said.

He added that BOV's attempt to obstruct its publication was legally incorrect and in contempt of the general investing public’s legitimate expectations.  "BOV’s attitude of trying to deny the general public access to the Regulator’s findings is, with all due respect, indicative of a low corporate governance standards, public accountability and openness, and undermines the public’s trust in Malta’s banking sector."

Asked whether BOV would be in favour of the publication of a report on the issue, should one be concluded, Roderick Chalmers was evasive. “BOV would be in favour of the regulator following the rules and regulations which covers its conduct. Just as we as Bank of Valletta are obliged to following rules and regulations, there are rules and regulations which cater for how regulators should behave.

"We have every confidence that the regulator would never countenance acting ultra vires of those rules and regulations and would follow them in every respect,” he added.

Bank of Valletta’s interim report has omitted to mention it is opposing the publication of an investigation by the financial regulator into the fund, stating instead that the investigation “is still in progress”.

The Malta Financial Services Authority (MFSA) has already said it has completed its investigation into the way the fund, once valued at €80 million was decimated to just over €20 million.

“Bank of Valletta believes that until such time as the investigation is completed in all respects, and that due process at regulation and at law has taken place, all matters relating thereto are subject to the strict rules of confidentiality that bind dealings between the Bank and the Authority," it said in its report.

“Accordingly, the Bank believes that it would be inappropriate to make any comment on details relating to the ongoing investigation until such time as this has been fully concluded in all respects.”

BOV reiterated its comments in its 2010 annual report, saying the bank regretted the poor performance of the fund. “BOV continues to believe that it has meritorious defences against the unsubstantiated allegations as contained in the judicial protests, and intends vigorously to contest and defend any claim.”

Libyan exposure

Bank of Valletta said it had limited direct exposure to Libya, but some secondary exposure still exists due to the growing number of Maltese businesses trading with the turbulent country.

“Overall the position is very manageable, and we are working closely with our clients to support them through this period of challenging circumstances,” Bank of Valletta said in its interim report for 2011.

“From a credit perspective, we have taken a cautious view on this secondary exposure, and have added to our collective allowance in this regard to cater for the higher downside risks. The bigger concerns at this stage are more geo-political than business in nature, particularly as an early solution to the upheaval in Libya is becoming more elusive with the passage of time.”

The Bank of Valletta Group has recorded a profit before taxation of €45.2 million for the six months ended 31 March 2011. This compares with €47.5 million pre-tax profit earned in the first six months of the previous financial year.

Net Operating Profit before fair value movements for the period has shown a modest increase of 4% (€47.0 million for 2011 compared with €45.2 million for the same period of the previous year). However, whereas there has been a satisfactory turnaround in the contribution to profits from our insurance sector interests, fair value movements for the period showed a negative €5.6 million compared with a gain of €5.9 million recorded in the first half of the previous year.

An interim dividend of €0.0625 gross per share (€0.0406 net of tax) has been declared by the Board of Directors in respect of the six months ended 31 March 2011.

BOV chairman Roderick Chalmers said the sovereign debt crisis had continued unabated with Portugal following Greece and Ireland in seeking financial assistance from the European Union and the IMF.

Whereas Spain and Italy appear to have been successful in de-coupling themselves from the three weaker “peripheral” states, attention is now turning as to whether the sheer weight of Greece’s debt is sustainable, or whether a restructuring of that debt is required after all.

“Fortunately, the Bank’s exposure to the three more seriously challenged eurozone economies is very limited, but the wider concern is the fear of contagion into the broader euro market should the EU leadership not move in a determined and conclusive manner to secure a long term solution to the current uncertainty,” Chalmers said.

“It is clear that the longer this takes, the more likely it is that domestic political pressures in the different European states may serve to make a lasting solution more difficult to achieve.”