The Malta Independent 22 July 2019, Monday

Overdue compensation to National Bank of Malta shareholders (part 2)

Sunday, 2 June 2019, 09:27 Last update: about 3 months ago

Anthony R Curmi

 

My article entitled ‘A house price index for Malta and the net asset value of the National Bank of Malta in 1973’ (TMIS, 7 April) resulted in a request for more information as to why, over the years, I have been writing on this subject. The answer is because I hope to see, in my lifetime, justice being done to the NBM shareholders who were deprived of their shares, for very dubious reasons, by the then socialist government way back in December 1973.

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It will be recalled that, initially, the Bank’s operations were taken over, under hastily enacted legislation, by a Council of Administration (COA) comprised of government nominees, and soon thereafter the bank’s name was changed to Bank of Valletta (BOV).

This second instalment (Part 2, for easy reference) will be followed by a series of further articles. Firstly, I will provide additional information on what I stated in my earlier article regarding the very unconventional manner in which the Bank’s own staff, with the concurrence of the new top management and the COA, revised downwards the value of immovable property charged to the Bank as security for advances to their customers. This, as stated in my previous article, was a clear ploy for increasing provisions for non-performing loans (NPL) by no less than 151 per cent.

This was one of the main reasons for coming up with a net deficit of Lm253,000 as at 31 December 1973 (as per the accounts produced on 3 April 1974 by the new government-appointed auditors) compared with a positive net asset value of Lm2.86 million according to the Bank’s own published accounts as at the end of 1972, prepared by their long-standing auditors.

An important factor worth noting with regard to the questionable property values formula concocted by the Bank’s staff is the fact that another device used by the COA was to establish a wholly-owned subsidiary (Cotswold Developments Ltd) to which were transferred, at the diminished values established by the internally-produced formula, a considerable number of properties held by the Bank as security for overdrafts and loans due by customers on whom pressure was brought to surrender their properties  to prevent the Bank from proceeding with the lengthy procedure of a forced sale by court order. Thus, the resultant shortfall in the value of security held by the Bank was reflected in its books making the higher provisions seemingly justified.

However, only a few months into 1974 Cotswold started disposing of these properties – in most cases at a price higher than that paid to the Bank – thus resulting in a profit to the Bank’s subsidiary rather than a write-back in the provision for NPLs, which would have been reflected in the Bank’s books, had this device not been adopted. I personally reviewed Public Registry searches for the period 1974-76 and can vouch for the fact that, in some cases, a profit was made by Cotswold Developments Ltd ranging from between 33 per cent and 42 per cent in a period of just six months from the date the properties were transferred to the Bank’s subsidiary.

In Part 3, I will produce and analyse comparative figures for the Bank’s audited accounts for 1972 and 1073, because only by showing the stark difference in these figures can one readily understand the differences created by the various financial engineering methods used by the COA/BOV and their newly appointed auditors to conclude that the NBM had a net deficit as at 31 December 1973 and thus was a failed bank. In subsequent articles I will give my reasons for having contested  these devices in court.

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