MFSA completes BOV property fund investigation

Industry sources said the report, an investigation into how La Vallette Sicav plc’s multi-manager property fund lost millions of investors’ deposits, was completed and delivered to the bank in the last weeks. The investigation had started back in August 2010.

Bank of Valletta said they had no comment to make on the report. “All matters between the bank and the MFSA, whether about the property fund or indeed any other matter, are subject to confidentiality regulations, and it is therefore not our policy to comment thereon,” a spokesperson told MaltaToday.

Bank of Valletta are expected to make its own observations and even challenge the report’s findings, a high-placed source at the Malta Financial Services Authority said.

Over 200 investors filed judicial protests against the bank, holding it responsible for how the fund, once valued in excess of €84 million, was depleted to some €24 million in 2009. The fund was managed by the bank’s investment arm Valletta Fund Management, which invested the cash in global real estate funds. It was portrayed as ‘a low-risk fund with low volatility’, giving good returns even when bonds or equities do badly.

Bank of Valletta has denied keeping investors in the dark over the management of the fund when it ran in trouble.

The investors claim the bank breached its own investment rules when it allowed La Vallette to invest their money in the property fund’s nine underlying funds. Specifically, they accuse the directors of breaching conditions in VFM’s offering document, that restricted it from investing in funds whose liabilities were higher than their net asset value.

The claimants also want BOV to put their minds at rest over the ‘abnormal’ withdrawal of 14 million shares, worth some €16 million, from the fund in 2008. Investors claimed that certain investors, including bank employees and directors, might have had access to ‘price-sensitive’ information when the Belgravia Group published its 2006 accounts on 30 January 2008. Then on 17 March, BOV moved to remove its investment in one the Belgravia funds, but by then the funds had been suspended.

The property fund’s massive losses are in part being blamed on the vicissitudes of the Jersey-based Belgravia group, which was placed under criminal investigation in 2008. The investors say BOV – as custodian of the fund – failed to keep them informed of what was happening to Belgravia group when it published its 2006 accounts in January 2008.

A €17 million investment in the Belgravia European Property Fund lost in excess of 90% and is today estimated at €1.3m, while other investments originally valued at some €47 million have fallen to €18.5 million.

BOV claims the fund was adversely affected by the negative performance of the property markets and by other factors, and that VFM had been proactive in taking measures to ensure that the interests of the shareholders of the fund were fully protected.

Earlier in 2010 at its AGM, the bank expressed its ‘regret’ at the poor performance of the fund. “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,” chairman Roderick Chalmers had said.