National Bank shareholders claiming €325 million in compensation

The shareholders of the National Bank of Malta, precursor of the Bank of Valletta before its forced nationalisation in 1973, have submitted a claim for €325 million in compensation for the shares taken away from them by the Mintoff-led government at the time.

The financial appraisal, carried out by banker Anthony R. Curmi – formerly a chief executive of the Malta International Business Authority – has been met with a disparaging reception by the government, whose own financial consultants have told the Maltese courts that the NBOM shares had no value whatsoever when the NBOM was nationalised.

It’s a handsome claim that comes 42 years since the Labour government took control of the NBOM to create Bank of Valletta, in which it retains a 25% shareholding.

In October 2014 a Constitutional Court confirmed a court decision that found that the shareholders’ rights had been breached when they were forced to surrender their shares, overnight, without any compensation. It was a harrowing example of the late Dom Mintoff’s uncompromising, and heavy-handed style of government.

Another decision upheld by the Constitutional Court recognised that the shareholders were entitled to compensation.
Bank of Valletta has always denied claims by the shareholders, saying that in 1973 the NBOM was insolvent, which the Maltese government is now insisting upon.

But the compensation claim will have even more serious implications if the 49 shareholders and their heirs take the matter to the European Court of Human Rights, to force the government’s hand in paying out compensation.

The Maltese government’s contention is that when the National Bank of Malta fell victim to a depositors’ run in December 1972, its shares were worthless.

But the Constitutional Court in its judgment of 2014 confirmed that the shares had value despite the temporary liquidity problems and that shareholders are entitled to compensation.

The National Bank of Malta was hit by a run on its reserves back in December 1972, but its original shareholders claim the Central Bank of Malta had refused to act as lender of last resort, and even blocked attempts by Barclays Bank to loan money to the NBOM.
In four days, the run on the bank saw enormous withdrawals totalling at least Lm2.5 million. Around 350 shareholders lost their shares after they were forced to sign them over to the government, without compensation.

Prime Minister Dom Mintoff had threatened in parliament that if the bank’s directors refused, he would remove the limited liability of the bank’s shareholders, extend it beyond the bank’s capital to their personal assets, and withdraw the four million pounds in parastatal funds which were deposited at the bank.

Mintoff used the occasion to legislate a Council of Administration to take over the bank. Shareholders were forced to sign over their shares to the state without compensation overnight. In an address to the nation on TV on 11 December, Mintoff compared himself to a cowboy “firing a shot in the face of a cattle stampede”.

But the Maltese courts have now recognised that despite the liquidity problem the NBOM faced, “a benefit was reaped from the shares that were handed over without compensation, and used to the advantage of the Council of Administration, and eventually to the Bank of Valletta” – and that therefore the bank was not insolvent and still had considerable market value at the time.

In fact, Curmi’s appraisal is that the €325 million claim “constitutes a fair and reasonable compensation” for the Lm7 million which he says was the net asset value of the bank in 1973.

But the government’s consultants – former IMF consultants Piero Ugolini, Richard Nun, and Larry Chilton – have insisted in a report to the courts that Curmi’s assessment is based on “unrealistic and invalid assumptions”.

“This fails to recognise the success of BOV was due primarily to the ownership of GOM which restored public confidence in the bank by fully guaranteeing all deposits which NBOM would have been unable to do,” they claim.

They also say that it was the National Bank itself that suggested that the government take over the bank. “NBM officials indicated that it could be possible for GOM to take over the bank without putting up money by giving the shares nil value. Although the Prime Minister was reluctant to resolve the situation in this way, the option would be considered if so proposed.”

They said the “history of self-serving and imprudent management practices” endangered the bank through non-performing loans that increased bad debts. “Government had no choice except to intervene in order to protect the depositors and creditors and to preserve stability of the broader financial system.”

Inflated bad debts
Upon takeover, the Council of Administration produced a balance sheet claiming a negative equity of Lm253,000, which the NBOM shareholders claim was achieved by excessively inflating the bank’s doubtful debts.

Curmi says the bank’s own properties were significantly undervalued by the Council, no provision was made for the goodwill from its 27 branches across Malta and Gozo, and that provisions for bad debts were raised by 151% from Lm2.3 million to Lm5.9 million.
This was based on a property index created by the bank’s staff on the collateral held on the loans issued by the Council, which claimed that villas, houses and apartments had fallen in price by 36.6% and the price of undeveloped land by 84%. This allowed the Council to raise the provision for bad debts.

But by 1978, Bank of Valletta managed to reduce the bad debts by Lm4.3 million over a period of just five years.
Indeed the Bank of Valletta immediately began to register profits (as in fact the NBM had for years – 1972 having been its most profitable year ever); and not only did the previously ‘worthless’ assets suddenly acquire considerable value for its new owner, but debts that had previously been classified as ‘unrecoverable’ were nearly all recovered in full.

On its part, the government’s consultants are insisting that 1971 was the tail-end of a boom-and-bust period in which a sharp drop in prices was still evident in 1972, according to sample surveys carried out by the Central Bank.

Property values
Another evaluation of properties held by the National Bank of Malta and taken over lock, stock and barrel by the Labour government in 1973 – the BOV head office in Republic Street, Valletta; the Marsa BOV branch at Cross Road; another Marsa property; the BOV branch on the Sliema Strand and the former Tagliaferro Bank on High Street; and a Gozo branch in Victoria, today comprise a total of €4.4 million.

The architect’s appraisal was carried out by Godwin Abela and submitted to the courts.

Long compensation battle
The Nationalist government had offered representatives of the National Bank of Malta’s shareholders €25 million for the shares they signed over under duress on the eve of the 2013 election.

Former finance minister Tonio Fenech had said that in a second attempt to close a 40-year saga, the Nationalist government’s offer had been turned down by the shareholders’ representatives.

“Any government should see what the fair value of the shares are before a court gets to decide how much compensation the National Bank shareholders will get,” he had told this newspaper.

In 2005, informal discussions between Investments Minister Austin Gatt and the National Bank shareholders were held over a reported Lm8 million (€20 million) compensation package to the shareholders.

Milica Micovic, a representative of the NBOM shareholders, had told MaltaToday the amount was “risible”.