BOV chairman plays down MFSA investigation as 'only an inquiry'

Sources privy to the investigation by the Malta Financial Services Authority have contradicted claims by Bank of Valletta chairman Roderick Chalmers, who today played down the extent of the regulator’s examination into the bank’s La Vallett multi-manager property fund by calling it “an inquiry… and not an investigation”.

“As an examination of the fund, this is an investigation by the MFSA,” a highly-placed source said. “We’re examining particular cases, trying to establish whether there was any insider knowledge, and whether all these people who were sold the product were in reality ‘experienced investors’.

Chalmers played down the number of complainants, 227, who have filed judicial protests against the bank, holding it responsible for the depletion of the fund – once valued at some €84 million – to €24 million.

He said they were “only 115… but 115 too many”, excluding over 70 complainants represented by Finco Treasury Management, the prime mover of these protests.

“BOV greatly regrets the poor performance of the fund and the impact this has had on our investors. We respect the right of any party to take commercial issue and we will always cooperate fully with the MFSA on the inquiry… not investigation, that is taking place,” Chalmers said.

In a reaction, Finco said the bank’s tone had departed “from the arrogance” of its last statement when the Bank told Finco “to put up or shut up”.

“There is for the first time an expression of regret ‘at the poor performance of the fund and the impact that this has had on investors’.  It is also positive that the Bank states that it will face up to and accept its responsibilities if its decisions and actions are found to have been wanting,” Finco director Paul Bonello said.

Announcing the bank’s €98 million pre-tax profits for 2010, Chalmers set much store in decrying “a mischievous and malicious insinuation” that the withdrawal of 14 million shares from the property fund in 2008 had been either “massive” or “extraordinary”, or that this was due to BOV staff and favoured clients who had access to privileged information before trading in the fund was suspended.

“Such a suggestion is totally untrue and grossly offensive… we would never tolerate such a breach of trust,” Chalmers said.

He singled out MaltaToday for calling the withdrawal “massive” when it was Finco that called the withdrawals “abnormal” and which are now the subject of the MFSA’s investigation.

Finco claims the withdrawals took place before the bank suspended trading in the property fund in August 2008, after it had already attempted to, unsuccessfully, withdraw some of the investments in March 2008.

Chalmers produced graphs showing the proportion of withdrawals in the property fund were indeed lower than those taking place in other funds managed by the bank, and far lower by those in HSBC bonds.

The same MFSA source who spoke to MaltaToday confirmed the bank’s level of redemptions were lower than those experienced in other funds across the board. “All property funds experienced withdrawals in 2008 due to increasing risks,” the source said.

Paul Bonello however countered Chalmers’ claims that the levels of redemptions were more or less the same as in other funds. He said nine funds from the La Valletta SICAV had redemptions of between €1.3 to €3.8 million, far less than the €16 million redeemed from the La Vallette property fund.

“One would presume then that in a downward market crisis, there wouldn’t be the same high level of redemptions in the La Valette Property Fund, as in funds investing in foreign bond and equity markets of the same La Valette SICAV.

“On the contrary, all La Vallette funds investing in foreign securities had redemptions much less than the property fund.”

Finco claims the massive withdrawal of shares is not related to the financial crisis, saying that the suspension of trading in the fund on 7 August was a month the crisis “entered the meltdown phase [that] commenced only with Lehman filing for bankruptcy on 15 September 2008.”

BOV staff also spoke to MaltaToday saying they had been personally queried by bank chief executive Tonio Depasquale over the reasons for withdrawing their funds from the property fund.

Chalmers said the bank had been open about problems in the fund, but did not refer to claims by Finco that it had invested a large bulk of deposits in property funds with a high level of debt. Finco says the bank breached its own prospectus rules in the process.

Chalmers also defended the bank from claims that the investors had not been ‘experienced investors’, a legal precondition for anyone who deposited monies in the fund.

“‘Experienced investors’ are defined so by the regulator… all investors signed a statement confirmed they were experienced.”

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