Evidently prompted by my letter entitled Justice for ex-National Bank of Malta shareholders: (TMIS, 2 February) Raymond Sammut asked the question NBM shareholders’ compensation claims – who will pay the piper? (TMIS 9 February). The answer, in my view, is that the burden of justice being done after 40 years should be borne by whoever benefited from the forced transfer of the NBM shares to government without compensation – in other words, we taxpayers.

However, the good news to taxpayers is that the proposal to which I have been giving my full support (although neither I nor any member of my family ever held NBM shares) will not involve any direct charge to government revenue and thus no additional taxation because it involves merely the transfer to the aggrieved parties of part of the government’s existing 25.71 per cent holding in BOV shares. I reiterate that it is worth noting that, to date, the government has gained at least €400 million from its investment of Lm3 million (€7 million) in BOV!

In my previous letter, I have already put paid to the argument that the NBM shares were valueless at the time that government intervened in 1973. Mr Sammut has shied away from the point I made to justify that a fully-staffed bank branch network should have been given considerable goodwill value quite apart from the fact that the market value of immovable property (a good part of which was in prime areas of Valletta and elsewhere) must have been far higher than that shown in the NBM’s book at the time.

I also made a comparison with the majority foreign-owned Banif Bank (Malta) that established itself in Malta in 2007 and which consistently made a loss over the first five years of operations reflecting only a small profit in the financial year ending 31 December 2012. As at that date, the bank concerned still had accumulated losses of €11 million resulting in an equity base of €21.5 million compared to a share capital of €32.5 million invested by its shareholders. This is ample proof of the cost of creating a branch network which, incidentally, is still less than a third of that of the NBM in 1973!

In an attempt to cloud the issue, Mr Sammut peppered his letter with various irrelevant matters and questions that are open to conjecture. Having myself been very close to the banking scene at a senior executive level even way back in 1973 – and there are only a few of us still around as I am on the threshold of 80 – I think that such people are best placed to assess the circumstances that created the run on the NBM and why the Central Bank of Malta did not act as a ‘lender of last resort’ as permitted by law.

In any case, a crucial and important factor is that recently the courts pronounced themselves emphatically in favour of the ex-NBM shareholders by declaring that the forced transfer of shares violated the shareholders’ fundamental human right to enjoy property in terms of article 37 of Malta’s Constitution.

I now turn to Mr Sammut’s attempt to equate the NBM situation with that of the American investment bank, Lehman Brothers, that folded in 2008 in quite different circumstances. Mr Sammut himself mentioned the “property market bubble of 2007-08”. He avoided giving the real reason for the cause of Lehman’s troubles and why the Federal Reserve Bank never intervened to save the bank. A lot has been written on that dark episode of banking history and it is amply evident from this that Lehman’s problems were not even similar to those of the UK banks quoted by Sammut and certainly nothing like the NBM’s situation in 1973.

The facts are that Lehman was riddled with toxic assets and that it was too dependent on inter-bank funding. As a result of the uneasiness created by a drastic fall in immovable property values in the USA; in the value of an abnormally large proportion of the bank’s direct lending secured by such assets and also in the value of an unduly high exposure to investments in derivatives (which themselves were linked to property market values), the banks that had lent billions of dollars to Lehman pulled back such funds leaving the bank with a massive liquidity deficit that brought about its demise.

For the reasons mentioned above this just cannot be compared with the temporary illiquidity situation in which the NMB found itself in 1973 that was caused by a run on the bank which, one should recall, was accentuated by a threat from government to withdraw from the bank substantial deposits that were held by parastatal bodies.

Anthony R. Curmi

St Julian's