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National Bank Part 9 •
February 1 2004 |
About Lm20 million ‘owed’ to shareholders today
Unresolved questions still surround the question of compensation for shareholders of the National Bank of Malta. Shareholders still ask why the National Bank was not helped by the Central Bank which should have acted as the banker of last resort as it was duty bound.
To many it remains a mystery as to how was it possible for the Bank of Valletta Ltd to register sizeable pre-tax profits (Lm1,098,000) in its first eight months of operation when all that was taken over by the Council of Administration was considered to be worthless and the bank was judged to be in a state of bankruptcy.
According to the Curmi-Mallia report on the financial situation of the National Bank of Malta as at 1973, the net asset value of the NBM in December 1973 after the run was equivalent to Lm2,857,445 or Lm292 per share. This should have been paid to the shareholders had the Government wanted to nationalise the Bank. The same amount should have been paid by the newly constituted Bank of Valletta Ltd in taking over the business of the NBM Group.
In 1994, when the report was drawn up, 21 years of accrued interest and value had been added to the market value of the shares:
"The major difficulty is constituted by the exact amount payable to shareholders in 1994 for the value that existed in 1973. Twenty-one years have passed since the NBM crises and we feel that the payment to the shareholders should reflect the opportunity cost suffered by them during this period," the report reads.
"We have analysed different methods that could enlighten us for this purpose. We decided to limit them to three possibilities…The first calculation assumes the Government would have paid the full amount of Lm2,857,445. The shareholders would then have invested this money as an instrument that provided a gross sum of 12 per cent per annum. The gross dividend payment would have been equal to the dividend payment made by the NBM Group to the ordinary shareholders in the last three years of its existence.
"The logic is that an investor would invest his money in those sources that will give him at least the same yield earned by him in the past. Therefore it would have been improbable that the shareholders invested their money in a source that provided less than the 12 per cent they earned in NBM. This method results in a payment of Lm13,988,766 to the original shareholders of the NBM.
Extending the same reasoning to 2004, the shareholders would be owed some Lm20 million today in what would be the most optimistic calculation.
"The second alternative results in a lower amount with which shareholders should be compensated. This method assumes that the shareholders, upon receiving the original Lm2,857,445, became very risk averse and sought, security rather than return. They would have deposited their capital with a local bank and earned the prevailing rate on a one year deposit and reinvested the income for the whole period.
"This method would compensate the shareholder for the erosion of money due to inflationary pressures. In fact the average inflation rate during the period 1974-1994 stands at 4.3 per cent. This alternative would result in a gross consideration of Lm7,960,735.
"The third alternative is based on the amount of Provisions for Bad and Doubtful Debts that were recovered during the period 1974-1978. The amount of Lm4,325,000 recovered from the original provision of Lm5,972,000 were distributed through the Profit and Loss Account to the new shareholders of the Bank of Valletta Ltd at the expense of the original shareholders of the NBM Group. It would be fair to route the real amounts recovered by the BOV Ltd to the original shareholders. The nominal amount recovered is then augmented by the inflationary pressures that existed in this period. Lm8,110,813 would be paid to the shareholders under this alternative."
Following the transfer of the National Bank of Malta’s shares to the government, Mintoff erected a Council of Administration to take over the operations of the bank. According to evidence that was supplied by the National Bank’s shareholders, the financial transactions carried out by the Council of Administration were by far more important, both in substance and in form, than those made by the original management.
Shareholders still have doubts about the reality of how much was withdrawn from the bank in four days. According to the Curmi-Mallia financial report, commissioned by the shareholders themselves, Lm1.3 million was withdrawn by the Council of Administration when it first took power of the bank, sending the total figure of money withdrawn up to Lm2.5 million, putting the bank into further, justifiable crises.
However, there are no documented statistics, issued either by the Council of Administration or the Government of Malta or the Central Bank of Malta that give the exact amount that was withdrawn during the run.
The annual Report for the year ended 1973, issued by the Council of Administration and audited by Deloitte & Touche, was compiled following the upheaval of the run on the bank and the urgency to find an immediate solution to this crisis. These factors could have influenced the collection of information and the consistency of the audited accounts.
The amount withdrawn by the holders of current and deposit accounts had totalled Lm3,733,000 in 1973, as well another substantial amount withdrawn by the banks Lm 2,727,000. The total of Lm6,460,00 was indeed substantial for a bank with a deposit base not exceeding Lm 43 million; in total 15 percent of the Group's deposits were withdrawn during the short period.
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