Updated | Labour government ‘will ensure serious negotiations’ between BOV, investors

Adds finance ministry's statement at 6:23pm

The Labour Party has pledged to "do justice" with clients of Bank of Valletta and its subsidiaries whose investments suffered huge losses in the years preceding landmark complaints to the Malta Financial Services Authority in 2010.

In a statement issued just 20 minutes before a press conference by Finco Treasury Management, which spearheaded the MFSA complaints, Labour said that if elected to government it would use its "best endeavours to ensure that serious negotiations between the bank and the advisors appointed by the investors" are conducted with a view to resolving outstanding matters in the La Valette property fund and Lehman Brothers perpetuals.

"The Labour Party is committed to do justice with victims of misselling and to meet financial consumers' legitimate expectations. The Labour Party is of the firm opinion that, insofar as the perpetuals issue is concerned, the rulings of the MFSA should be honoured in full forthwith."

The MFSA has already imposed an administrative penalty of €175,174 on Bank of Valletta plc for regulatory breaches related to disclosure of information and suitability of financial instruments sold to the general public. The penalty was the culmination of a lengthy investigation triggered off by a number of complaints on the manner in which certain securities had been sold to investors, including perpetuals and other preferred securities issued by Lehman Bros, Royal Bank of Scotland, HBOS and others.

Around 40 investors had filed a judicial protest against BOV back in October 2011 claiming they were advised by the bank to place their savings in 'junior subordinated bonds' and perpetuals - whose debt usually is paid after other senior debts are paid should the company be closed - as happened in the Lehman crash in 2008 when housing prices crashed in the United States.

The protestors claimed BOV failed to explain the risks of the perpetual securities, instead having described them in purchase contracts as "straight bonds".

The MFSA investigated these claims and found BOV in breach of investment services regulations and imposed appropriate administrative sanctions and penalties. 

While the MFSA has recommended that the bank reinstate complainants in their previous financial position and compensate investors  in full with the capital and income losses involved, the bank has refused to comply with  these recommendations describing them as "mere non-binding opinions".

In its statement, Labour also said it had taken note of the complaints by Finco on the La Valette property fund, which culminated in a €203,150 fine for breaching license conditions when selling units in the fund to its clients. "

In its investigation, the MFSA said that in several cases there was no evidence that Bank of Valletta made any effort to verify the validity of the self-declaration made by these investors. "On a number of occasions Bank of Valletta's advisors did not take reasonable steps to ensure that these advisory clients were indeed experienced investors before advising them to invest in the La Valette Multi-Manager Property Fund."

The MFSA also found instances in which advisory investors' client fact-finds were not updated or did not contain information which corroborated the experienced investor declaration; bank officials were not provided with proper training and guidance regarding the nature, characteristics and risks relating to the property fund; and the bank failed to keep appropriate records in relation to transactions in the property fund carried out on behalf of clients.

In its reaction, the finance ministry pointed out that the MFSA was created in order to have a strong and independent regulatory body and attributed the successes achieved in the sector to the regulation introduced.

"The government's role is to facilitate matters and bring the parties together. However it's not the government's role to judge and impose as the opposition implies."

Labour was accused of advocating state interference which would weaken the MFSA's autonomy.  

It also condemned the Opposition for its "irresponsible" comments, which destabilise the financial sector in Malta and endanger more than 1,500 jobs within Bank of Valletta. It added that Labour is irresponsible in its attempts to gain political advantage in such a sensitive sector.

The ministry also said that contrary to what Labour is saying, the government is a minority shareholder in BOV as it holds 25% of shares. It added that apart from the chairma, the government only has one other director sitting on the board.

"The government cannot put the position of all other stakeholders, including the 18,000 shareholders at risk because of its decisions," the statement said.

The government respects the autonomy of the chairman and the board "and for that reason it does not interfere in the banks management and decisions," the finance ministry added.