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The article by Jeremy Cassar Torreggiani (MaltaToday March 7) has prompted me to add some more spice to the revealing articles serialized in your newspaper over the past few months.
One cannot but show solidarity with the views expressed by him on behalf of the National Bank of Malta Shareholders Association. It is indeed shameful that former NBM shareholders who suffered financially through this scandal committed in the darkest days of socialism should have been left in the doldrums for over 30 years.
Moreover, for a former Member of Parliament to label as cowards such shareholders who were forcibly threatened with the removal of limited liability if they did not sign over their shares in the NBM to the Malta Government is also most distasteful. This only serves to rub salt into the wound apart from raising serious doubts as to the integrity of a former elected people’s representative.
Apart from expressing my solidarity with Jeremy Cassar Torregiani and all former NBM shareholders and complimenting the Editor of MaltaToday for so vividly recounting this despicable episode in Malta’s banking history, I would like to comment on some of the aspects covered by previous articles and also to add some hitherto unpublished snippets. This I am doing from my own recollection of events with which I was reasonably close at the time.
In so doing I am being prudent in not betraying confidentiality but there are matters of public interest that need to be brought to light. In my capacity at the time of assistant to Louis E Galea (then Local Director of Barclays Malta) I was privy to various communications between Barclays Malta Local Head Office and the London Head Office. Obviously, I cannot reveal what I recall of the contents of such coded messages but only generalise on the outcome of these, that is on the final decisions. Thereby I hope to throw more light on what really happened during the eventful days of NBM’s dying moments.
For reasons of space I am restricting myself to only a few of the statements/quotations in the articles published so far.
Barclays Malta offered bridging finance to the NBM
This is true to a certain extent. It is not unusual for a bank to assist another bank, even a competitor, that is facing temporary liquidity problems. I emphasise the word temporary as, obviously, no prudent bank would risk its own depositors’ and shareholders’ funds unless it is satisfied that the bank being assisted is not headed for worse times.
As far as I can recall, no specific level of support was discussed let alone agreed. Barclays was constrained to step into the breach with an offer to assist its main competitor in Malta only because the Central Bank, probably acting on superior orders, was unwilling to fulfill its normal function of acting as a lender of last resort.
There was no question, of course, of Barclays pumping in unlimited funds to keep the NBM afloat. The end result of discussions that lasted well into the night, and at which I was present with Mr Galea, was that when it became clear that all NBM’s offices would be remaining closed the following day, Barclays agreed to take the risk of accepting all cheques drawn on the NBM that were tendered at its counters and to seek reimbursement when that banks’ status became clearer.
This was a bold step by Barclays to avoid a grave risk, in the absence of the CBM’s refusal to intervene, of a collapse of the entire banking system with untold repercussions on business in general and even Malta’s economic stability. In the event, a Council of Administration for the NMB was hurriedly set up following legislation rushed through Parliament and Barclays was duly reimbursed through normal inter-bank clearing channels for all NMB cheques negotiated.
Barclays would be a partner in a new banking venture that would arise from the ashes of the NBM
This statement is attributed as having been made by Dom Mintoff in Parliament. Of course, he presented things in a way that suited him at a time when there was a clear need to reassure depositors as to the safety of their funds.
In reality, to my knowledge, Barclays never showed any keenness for such a proposal however much the then Government (or rather Mr Mintoff) may have had this in mind. Barclays was not after having a slice of a bigger cake. Indeed, Barclays, including the local top management, was against the one-bank concept for various reasons amongst which was the fact this would have been bad for Malta as it would have removed competition between two major banks that existed at the time.
Moreover, Barclays could never have shown interest in a new bank comprising the banking business of both Barclays and the NBM without first conducting a due diligence exercise.
There was no time for this within a restricted time frame and in those turbulent days. Such an exercise was all the more necessary in the knowledge that the NBM’s standards – not just in its credit assessment techniques – were way below those of Barclays, a good number of whose staff had received thorough training both in Malta and abroad.
It is no secret that, all along, Barclays’ plans were to localize its Malta operations by retaining 60 percent of the equity with the remaining 40 percent being held by Government and/or local private shareholders. Proposals on these lines (and I was much involved in the preparation of these soon after my return from a spell of duty at Barclays’ Local head Office in the Bahamas) were made to the Nationalist Government before the 1971 elections which saw the Malta Labour Party being elected.
Mr Mintoff made it clear on becoming Prime Minister that this was not on and that he was planning Barclays’ localization but with a reversal of the percentages! This, I assume is what led the late Dr Edgar Mizzi to say that ‘Mr Galea had already swallowed the pill.’ Never did Barclays show any interest in a 40 percent shareholding in a ‘combined bank,’ including also the NBM, as alleged in previous articles.
The NBM shares on that
particular day had no value.
I now come to perhaps the most delicate and contentious point arising from all that has been said, even in the Malta courts, on the circumstances leading to the NBM’s demise. Both Mr Galea and Dr. Mizzi are quoted as having said that the shares had no value. Although such a statement seems cruel – possibly even betraying the truth – it has to be viewed in the light that it was based on the fact that this related to a bank whose banking licence had been or was on the point of being suspended!
This a point that can be argued ad nauseam. If a bank is no longer licensed by the relevant authorities of the country in which it operates to offer banking services to the public can its shares have any intrinsic value? Even if the audited accounts showed a positive net equity (but it will be recalled that auditors Deloittes had certified that there was a net equity deficit of some Lm0.25mn due to an under-provision for bad and doubtful debts – but see later), liquidation procedures and the attendant costs are likely to leave nothing for distribution to shareholders.
One can cite as an example the BICAL protracted liquidation proceedings where even depositors have not recovered 100 percent of their funds apart from foregoing all interest income over all these years! Mr Galea appeared before the late Judge J H Xuereb and gave his considered opinion which concurred with that of Dr Mizzi. The ethics of this were challenged by the NBM shareholders and I tend to the view that it would have been more appropriate for the Courts to have sought the expert opinion of a representative of the Central Bank rather than from the head of a competitor bank.
I think it appropriate to conclude my comment on this aspect on what I consider to be a crucial point of the NBM scandal by recalling that Mr Mintoff used the same suspension of licence tactic when, in 1975, he felt it opportune to bring Barclays’ banking operations in Malta under Government’s wing.
Of course, the circumstances were entirely different, but the tactics identical to those adopted for the NBM takeover. Barclays was by far the major bank in Malta with a modest local capital base but with an internationally recognised name behind it and the substantial assets of Barclays worldwide in the background.
So Mr Mintoff could not draw a parallel with the NBM’s situation. Instead he used the banking licence suspension sword (without any justification other than to achieve his political aims) by telling Barclays in March 1975 that their licence would be withdrawn within six months. In the same breath Barclays were told that a new bank would be established by Government in Oct. 1975 with a 60 percent Government shareholding and the other 40 percent to Barclays if they wished to stay on.
This, of course, is another story. I wrote an article in another newspaper at the time of the 25 anniversary in Oct. 2000 of the creation of Mid-Med Bank (now HSBC Bank Malta).
The bad debts that never were
In part 8 of the series of articles (MaltaToday January 25) serious doubt was raised on the question of the justification of the substantial increase in bad and doubtful debt provisions made by Deloittes in the NBM’s audited accounts that showed a net equity deficit of some Lmn0.25mn – allegedly to suit Government’s purposes. As I have already said, this crucial point remains debatable. With hindsight, it certainly seems that the auditors had taken too pessimistic a view. This is because of the fact that a high element of such debts (classified as bad or doubtful by the auditors possibly for reasons that never came to light) were subsequently recovered within a short space of time by the Bank of Valletta, the successors of the NBM.
This notwithstanding, as I have already stated, the fact remains that the NBM could not continue to operate were its banking licence to be withdrawn and it is likely that the consequences of liquidation (costs etc.) would have resulted in the NBM shares being of very doubtful value.
My own conclusions – unanswered questions
In my view, crucial points are whether or not Mr Mintoff’s Government was justified in (a) not ensuring that the central Bank exercised its duty as a lender of last resort; (b) threatening to withdraw the NBM’s banking licence and (c) the duress exercised in getting NMB shareholders to sign over their share to Government under the threat of the removal of limited liability.
Answers to these questions have long been awaited and it remains strange that successive governments have avoided the issue and no board of inquiry was ever set up. It was left to the NBM Shareholders’ Association to seek redress in the courts but even that seems to have been blown to oblivion.
An inquiry should not only attempt to answer points (a); (b) and (c) but also delve into various other grey areas. Amongst these is the allegation that pressure was made by Government at the time of the NBM crisis on the Deloittes partner (Paul Milne, an Englishman who owned a holiday home in Malta and led the NMB’s external audit team) to produce accounts that showed a negative equity position. Only he can answer the question – if he is still around – as to whether there is any truth in the allegation that he was even threatened with being declared a persona non grata, never to be allowed back to enjoy his property in retirement. I myself am not aware of any evidence to support this allegation but this and many other questions remain unanswered.
It is indeed sad that the former NMB shareholders still await justice to be done after more than 30 years.
This newspaper’s investigative journalism is to be highly commended.
In 1975 Mr Curmi was appointed as the first General Manager of Mid-Med Bank Ltd. He resigned in 1980. He joined Barclays Bank Malta as a junior clerk in 1950. With Barclays he saw service in senior executive posts in the Bahamas; Milan and their London Head Office.
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