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Review of the Events at the Time
of the Compiled by Dr. E Micallef LL.D |
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The
first tremor that signaled trouble for the National Bank of Malta
Ltd.(NBM), was registered on Thursday, 6th December, 1973 when some
branches reported withdrawals that were heavier than normal. That same day, the General
Manager, Mr. Henry Micallef was called for a meeting at the Central
Bank(1) where he met the Assistant Governor, Mr. Lino Spiteri. The latter asked him what had
happened and Mr. Micallef informed him of the withdrawals but assured him
that there was nothing serious and that extra funds had been made
available to the branches to make good for any further withdrawals He
further re-assured him that the Bank had enough liquidity to meet a heavy
demand and that it had experienced several other runs before and had
managed through them safely(2).
People usually deposited the money a few days after they had
withdrawn it. FRIDAY 7th December, 1973. The
following day, Friday the 7th, the withdrawals continued and the Central
Bank called the chairman of the NBM for a meeting with the Prime Minister,
Mr. Dominic Mintoff (3). The
NBM delegation reiterated what they had told Mr. Lino Spiteri and they
asked him to allow them to handle the situation. Up
to that day, there had been many rumours about what had caused the run on
the Bank but the real reason was yet unknown to the directors. In fact,
Mr. Mintoff himself confirmed this in Parliament when he said that
'1Ma stajniex ahna nsibu raguni seria iI-ghaliex hemm dan
ir-run"(4) and that the Central Bank had informed him that the Bank was
actually doing better than the previous year. Later it was found that a many
depositors had been induced to withdraw their money urgently because the
rumour was that the Bank was in great trouble. Was the rumour spread with
maIicious intent? Since the
Bank was better off than in the past, there was no serious motive to
justify the panic. The
question still remains as to who started the whispering and why. This it seems, has never been
established. Another factor
that could have helped to undermine the Bank was the fact that Government
had previously been airing the intention of taking over the banking
system. The Prime Minister
himself bad made specific statements of objectives to this effect and
there had also been two specific ministerial public statements. The
Central Bank wanted to issue a statement to set minds at rest about the
run on the Bank but the Prime Minister had hindered it, claiming that the
statement was too weak and that it would not stop anything(S). One must stress upon the fact that
usually the Central Bank would, in the circumstances, issue a cautious
statement as to the stability of a bank and thereby protect the latter's
reputation and cool the run.
The Central Bank has an emergency
function to stand as a Rock of Gibraltar in time of panic, to be ready to
use the full monetary powers of the Government to stem collapse of the
banking system." (Samuelson - Economics) Therefore "a single bank need no longer
fear that its reputation, like that of a good woman is compromised simply
by being brought into question."
But alas, the Bank's reputation found no similar support and this
despite the fact that the P.M. himself had declared that the NBM's
financial stability was sound. "An essential function of a Central Bank is
that when circumstances require it, it should act as lender of last
resort. No commercial bank,
however efficiently run and soundly managed, could withstand an abnormal
demand for cash. In a banking
crisis it becomes the duty of the Central Bank to allay any tendency
towards panic on the part of the public by assisting the banking system to withstand
the strain of excessive demands made upon it for cash." (A Textbook of
Economics by J.L. Hanson -Macdonald and Evans). But the Central Bank, when thus
requested by the NBM, had offered to lend only against realizable
assets. The P.M. had stated
in Parliament(6) that the Central Bank had refrained from providing the
necessary advances because there had not been enough time for the NBM to
produce the requisite securities. Notes to the
above (1)
Antoine Tagliaferro (Assistant Manager) accompanied him. MONDAY 10th December, 1973. On
Monday 10th, the situation worsened because the withdrawals continued and
were even heavier than those of the previous two days. In fact Lm900,000 were withdrawn
that day. In the
circumstances, a board meeting of the National Bank was called to discuss
the situation and the Directors were informed of what was happening. The General Manager and the
Chairman of the Bank assured the Directors that the Bank had 30% liquid
assets and was therefore within the requirements of the law; the minimum
allowed being 25%. Monday's first meeting with the Prime
Minister. In
the afternoon, at 3.00p.m., the Prime Minister sent for the NBM officials
at Castille. Present were:
for NBofM Ltd., Mr. Louis Vella, the Chairman, Mr. Henry Micallef, the
General Manager and Mr. Antoine Tagliaferro, Assistant Manager(7) and
accompanying the Prime Minister were Dr Joseph Abela, then Minister of
Finance, Mr. Earland, the Governor of the Central Bank; Mr. Lino Spiteri,
Mr. Henry Degabriele and Dr Edgar Mizzi, the Attorney General. This
meeting was a very heated one and the Prime Minister was adamant on having
the shares of the Bank transferred.
He wanted the Bank by 5.30p.m. He threatened them that he would
otherwise close it and declare a "Bank Holiday" as he was empowered to do
by the Banking Act. Mr.
Earland was quoted as having exclaimed "it is inconceivable!" at Mr.
Mintoff proposition. Such an action would, of course, cause more damage
because it would confirm the depositors' fears that the Bank was in danger
of bankruptcy. The Prime Minister admitted that this was not a case
like the one of Bical but he said that these were the people's money and
that he, as Prime Minister, was responsible for them. It is obvious from Mr.
Micallef's evidence in court that the P.M. out rightly rejected any
suggestions from the part of his advisers who were present at the meeting,
leading to any aid to the Bank to see it through the crisis He also refused to listen to
Mr. Micallef’s proposal that the Bank should borrow from Midland Bank and National
Westminister Bank. Notes to the above
:-
(6)
Cf. Debate of Tuesday 11th, Vol. 143, pg. 884. Seeing no way out of the situation, Major Austin Cassar
Torreggiani asked for the price at which the shares were to be transferred
and the flat reply was: "Naturally without compensation." All protests fell on deaf
ears. Mr. Mintoff then
instructed Dr Edgar Mizzi to draft an Instrument for the transfer of
shares which read as follows: "We the
undersigned, hereby authorize the Board of Directors of the National Bank of Malta Ltd. to
transfer to the Government of Malta all the assets pf the Bank in
consideration of the assumption by the Government of Malta of all the
Bank's liabilities and undertake to do all that may be necessary in order
that such transfer be effected." At this stage,
the Prime Minister wanted the control of the Bank and he refused any idea
of compensation to its owners because he reasoned that, in consideration
for the assets, government would be taking on the responsibility for the
Bank's liabilities. Mr. Mintoff secured his demand by
two very serious threats that turned out to be highly efficacious to
extort the compliance he was
asking for The Directors had no choice. He threatened that if they
persisted, it would be at the risk of the shareholders because he would
extend the limited liability of the shareholders beyond the Bank's capital
to their personal assets. "If
tomorrow morning you come and tell me that the Bank has gone bankrupt God
help you. The shareholders
will be held personally responsible.
Remind them that it is in Malta that they have to live."(8) He couldn't stop people from
coming to their houses to remove their personal belongings'.'(9) to make
good for their deposits. His second threat was that he would withdraw the
four million pounds parastatal funds which were deposited in the Bank so
that "all Malta would know that the Bank had gone bankrupt."(10) Mr. Mintoff added that he'd go on
television and tell the people, "Jien se ndabbar rasi; tieghi se
nehodhom" and that he would fill 'Strada Reale' with the vans of the
parastatal companies to make a show of it and alarm all and sundry thereby
aggravating the run. It is
interesting to ponder upon the fact that the five parastatal companies had
previously been depositing money with the National Bank while they were
borrowing money from Barclays, thereby always increasing their deposits
with the National Bank. The NBM representatives returned
to the Bank and reported the outcome of the meeting to the Directors and
to some major shareholders who were present. Immediately, a feverish telephone
campaign was started in an attempt to convince the Bank shareholders to
give up their shares and to go and sign the deed of authorization for the
Directors to transfer them to the Government. The directors made it quite clear
to them that if they did not transfer, the Government could take their
personal effects from their homes - the individual shareholder's
home. "jekk ma jitrasferhux.
. ..il-Gvern jaghmel il-Ligi u l-ghada insibu lillMarixxal u
jaghmlilna elevazjoni tal-hwejjeg taghna kollha."(11) Notes to the
above:- (8)
See evidence of Dr Philip Attard Montalto where he says that it was
the Chairman who reported these words to the Board of Directors. (9)
See Court evidence of Mr. Peter Cassar Torreggiani. (10) See Court
evidence of Dr Philip Attard Montalto. (11) Cf. Court
evidence of Mr. Justice Anthony Montanaro Gauci. Panic reigned supreme. How was it possible that
shares of a Lm100 each which
had a market value of Lm350, be transferred for no consideration? On
the other hand, the removal of the limited liability would have stripped
them of their personal belongings and their hardship would have been
worse. Indeed, the terms of "highway robbery" and "hijack" which were used
to describe the situation were most appropriate: You either give up your
money or you die.
On that Monday afternoon, the situation was very critical. Time was running out and tension
running high. All doors were
closed. The directors had no
alternatives and they had to decide between two very painful evils. They
either had to allow the Government to take control of the Bank or else
face sure bankruptcy because all sources of support were blocked by the
Government. The only
possibility was to institute liquidation proceedings but they were
hesitant because this would have caused great hardship to the depositors
who would be denied their right to withdraw their money for a long time;
to the three hundred bank employees who would have lost their job and to
the thousands of workers who were employed by the many enterprises which
would have closed or collapsed if the Bank were to be declared
bankrupt. Above all, they
feared that the shareholders' investments would have been totally
lost. Most
of the Directors and shareholders present signed the transfer that had
been drafted by the Attorney General. However many others refrained and
the Directors had by no means managed to obtain the signature of the
shareholders having 65% of the shares - this being the requisite majority
for the passing of an extraordinary resolution according to the Articles
of Association of the National Bank of Malta Limited. For
the second time that day, a delegation from the National Bank (12) went to
the Palace to meet the Attorney General, Dr.Edgar Mizzi with the intention
of requesting the opportunity to consult foreign banks which could lend
them bridging finance. But
this request was again turned down.
They suggested that they should speak to Mr. Louis Galea of
Barclays Bank but Dr Mizzi's answer was in the negative. He informed them that Mr. Galea at
the time was with Mr. Mintoff and that he had already taken the pill :
"Dak diga' bellghaha l-pillola."(13) Some Directors had interpreted
this to mean that the P.M. was going to take over Barclays as well. Whatever it implied, any chance of
support from Barclays was ruled out. Dr
Mizzi faithfully reminded them of the threat that in the morning the
Prime Minister was going to withdraw the 4 million
pounds in parastatal funds.
That same evening they had to obtain the signature of at least 51%
of the shareholders. In
order to appreciate the gravity of the situation, it is important to take
into consideration the factors that were weighing hard against the
Bank. First and foremost, the
Bank's liquidity was running disturbingly low. Up till that day, Lm1,200,000
had been withdrawn and it was certain that further withdrawals would
cripple the Bank. Therefore
it needed financial support and fast - liquid cash was vital for its
survival. Despite this need, Government did not allow the Directors to
seek the help of foreign or local banks. The Central Bank did not, or
could not help either. Notes to the
above:-
(12)
Present were Dr Philip Attard Montalto, Profs Cremona, Mr. Louis
Vella, Major Austin Cassar Torreggiani, Mr. Henry Micallef, Baron Patrick
Scicluna, Dr Robert Staines and Mr. Antoine Tagliaferro. (13) Court
evidence of Dr Philip Attard Montalto. .
In
such circumstances, it is usually the Government that lends support. It is worthwhile to quote
Samuelson on the matter. He
sustains that: "Banks are safe today
because everyone realizes that it is a vital function of government
to stand behind them should a depression or panicky run on the banking
system ever recur. No Banking
system with fractional reserves - i.e. none that keeps less than 100% of
its deposits in cash - can ever turn all its deposits into cash on a
moment's notice. So every fractional reserve system would be a
"fair-weather system" if Government did not stand ready to back it
up. If the panic ever
came again, Congress, the President and the Federal Reserve Board would
all act, even using their constitutional powers over money to print the
money needed to meet a national emergency."(14) Unfortunately, the Maltese
Government's idea of saving the Bank was by taking over its assets and
liabilities and not by aiding it with ready cash. The other two crucial factors -
the threats and the short time - were the instruments, which were used to
tighten the ropes to squeeze out the requisite consent. Second Meeting with the Prime Minister. The
National Bank of Malta delegation, demoralized and empty-handed returned
to the board meeting only to be called again to the Palace to meet the
Prime Minister(15) who was accompanied by several Ministers(16). This
meeting was the worst one yet with Mr. Mintoff making himself understood
very loudly: "Tonight, I will address Parliament and I shall tell them
that you came over to me to give me the Bank". Protests were silenced and
buried. He said,
"ix-shareholders xappu bizzejjed, issa daqshekk" and again, "jien se
nghid lill-Poplu illi gejtu toffruli 1-bank u tajtuhuli b'xejn".(17)
In
fact, the next day, that was how the newspapers reported it. Dr Attard Montalto challenged him to
nationalize the Bank and compensate the shareholders on the Audited
Accounts. But of course,
Mr. Mintoff new better. The
Prime Minister informed them that Government and Barclays Bank had agreed
to form a new bank having a capital of three million pounds, with
Government holding 60% (Lm1,800,000) and Barclays 40% (Lm1,200,000). This new Company would then take
over the National Bank, when the shareholders agree to transfer the
Bank. Thus the NBofM
Directors were faced with a "fait accompli". Finally, the Prime Minister
instructed Major Cassar Torreggiani to collect the share certificates for
him. That
same evening of the longest day, Mr. Mintoff made a statement in
Parliament. His version of
the matter was as follows:- About a fortnight before, Government had heard of
the rum ours that were damaging the National Bank and it had drawn the
Bank's attention. about its consequences. The parastatal bodies wanted to
withdraw their money but the Government had advised them to the
contrary. During that
afternoon's meeting with the NBofM delegation, he had promised to
discourage any withdrawals by parastatal bodies. They suggested to him that
Government should take over the Bank for no compensation and he replied
that if the offer was made by the Board and by the shareholders,
Government would be prepared to consider it seriously and see what can be
done(18). Notes to the
above:- (14) Ibid.
pg. 279. (15) This
time they were Dr Philip Attard Montalto, Mr. Louis Vella, Mr. Henry
Micallef and Major Austin Cassar Torreggiani. (16) Dr
Anton Buttigieg, Mr. Lorry Sant
Mr. Wistin Abela, Dr Joseph Abela, Mr. Camilleri (secretary), Dr
Edgar Mlzzi and Mr. Louis Galea of Barclays.. (17) Cf.
Court evidence of Dr Philip Attard Montalto. (18) Taken
from Parliamentary Debates. Sitting No. 248 of Monday 10/11/73 Vol. 143,
pg. 770-780.
On this Point, it must be appreciated that, as it is reported in the Times of 13/11/73 (Editorial pg. 10), the reasons why the Bank's Directors took such a hard step had not been divulged to the public and they remained unknown until the evidence of the first witnesses was given in Court six years later. Mr.
Mintoff announced the setting up of a new company between Government and
Barclays Bank which would be taking over the National Bank. This take-over, he explained,
should restore the trust of the public in this Bank and thereby the run
would stop. Up till that hour
there were 50% of the NBM shareholders who had accepted the transfer and
he was reassured that within one or two days he would have the required
two thirds majority. As for
the following day, he said that the Directors had agreed to go by the
operational guides issued by the Central Bank and Barclays. TUESDAY 11th December, 1973. The
effect of his statement was catastrophic. The following morning of Tuesday
the 11th instead of abating withdrawal grew heavier. By the end of the day
Lm1.3 million had been withdrawn bringing the total to over Lm2.5
million. Late that afternoon, the Prime Minister appeared
on Television. In his
interview(19) he stated that Government and Barclays wanted to save the
situation that had been created by false rumours that the Bank was in
financial difficulties. He
compared the run to a stampede of cows on the rampage towards the
precipice. Somebody had to
have the courage to stop them.
He said that there were also rumours that Government was taking
advantage by taking over the Bank.
This, he declared, was not true. He appealed for calm and announced
that on the advice of the Central Bank the NBofM was to suspend its
activities as from the morrow to see what could be done in the interest of the depositors. Government and Barclays would then
get together to solve the problem quickly. In
Parliament that evening(20) the PM. explained, in justification,
that in the circumstances, he had no other choice but to close the Bank to
avoid further damage. He was
well aware of the fact that closing it would cause damage to the Bank's
name in Malta and abroad.
But between the two
evils, they had to choose the lesser one, Mr. Mintoff accused those who,
with malice, had interpreted the Government's efforts wrongly, thinking
that Government wanted to nationalize the Bank. If it were so, Government would
have the courage to say it.
"We do not nationalize what is dead" he said. He wanted to effect a rescue
operation. Government was
lucky that Barclays had seen eye to eye with it because they have an
interest in that the banking system should not collapse. He emphasized that this was not a
question of party politics and that nobody could say that this is a
Bank of the Labour Party. The
Leader of the Opposition, Dr George Borg Olivier then claimed that the
version he had heard from the Bank's Directors was partly in conflict with
the P.M.’s version and he requested the P.M. to confirm that Government
had offered financial aid through the Central Bank, since from his
information, no such aid was offered as was the usual practice. Orizzont of 12/12/73, pgs; 1&5. (20) Cf.
Parliamentary Debates, Sitting No. 249 Adjournment pg. 871 et seq.
Mr. Mintoff's answer was that the Central Bank was not a
charitable institution in that the ailing Bank had to offer securities for
the cash. It was the Government who would help, not the Bank because the
latter was bound by law to demand securities for advances. The Bank's securities in England
were not good enough and any other securities had to be
realizable. Government
had helped; firstly by refraining from withdrawing the Lm 4 million
belonging to the parastatal bodies and secondly by providing Lm 3 million
together with Barclays. The
NBofM representatives, he said, knew what Government was doing for them
and said, "Isma', ahna gentlemen, naf illi f'dan 1-istampede il-kapital
taghna ser idub. Biex
nghinukom, we‘re going to forego il-fatt illi hemm share capital taghna u
hemm rizervi." He
continued, "Did they expect Government to give them all the budget so that
they would remain shareholders in the Bank? After all," he reasoned, "they
gave nothing to the people when they earned money from them. I cannot say
that the Bank belongs to the people because it actually belongs to the
shareholders. We have done this in the people's interest." Mr. Mintoff then submitted that
Government was not in a position to guarantee pound for pound. WEDNESDAY 12th December, 1973. In
the very early hours (2a.m.-3.30 a.m.) of Wednesday 12th, the Police
informed each individual Director that the Bank was going to be taken over
by virtue of Section 18 of the Banking Act(21) that the Bank's license was
suspended arid that Mr. Lino Spiteri had been appointed to take charge of
the assets of the NBofM. They
were told that the licence would never be restored unless Government
received at least two thirds of the shares. The Noble Guido Sant Fournier,
being the custodian of the Bank's keys, was threatened with arrest if he
did lot consign them. The
Bank's officials were called to another meeting with the Prime Minister
where they were presented with another version of the declaration in which
the shareholders were to transfer to the Government and also to "any
person or company designated by the Government of Malta, the business of
the said Banks including all assets and liabilities of such Banks." The
declaration, this time, specified that, "the transfer was to be effected
without payment of any compensation or other consideration
whatsoever." It further
provided that: 1)
the Board of Directors be authorized to do all that may be
necessary to effect and complete the transfer, and 2)
2) that the shareholders should either vote in favour of any
resolution to that effect or else confirm or ratify the said transfer at a
General Meeting should this be necessary. The
threat of the removal of the limited liability was again strongly
reiterated - that evening, the P.M. was going to legislate either to set
up a Council of Administration or to remove the limited liability, and he
declared that he would do this despite his knowing that it was
unconstitutional. Notes to the
above:- (21) This
section gives the responsible minister the power to appoint a person to
take charge of the assets of the Bank or any portion of them for the
purpose of safeguarding the interests of the depositors, creditors and
shareholders of the Bank. Court's authorization for the transfer of the
shares of the Scicluna and Sant Fournier. That
same day, the Directors concerned filed an application in the Second Hall
of the Civil Court to obtain the requisite authorization to attend at an
extraordinary general meeting of shareholders of the National Bank and to
vote according to the directions that the Court deemed fit to decree with
regards to the declaration.
The Court had to decide about the transfer of the shares of the
late Marquis John Scicluna and of his son and the shares of the late Count
Alfred Antonio Sant Fournier, their total being 1,109 shares. The testamentary administrator of
Scicluna's estate was Mr. Alfred Delia and he was therefore responsible
for its 918 shares, 200 of which belonged to the Noble Marquis Joseph
Scicluna; the latter's curators being Mr. Alfred Delia and Baron Patrick
Scicluna. Dr Philip Attard
Montalto and Mr. Adrian Busietta were the co-curators of the Noble Count
A.A. Sant Fournier and were therefore responsible for the 191 ordinary
voting shares registered in the name of the Count and his four
children.(22) The
judge heard several witnesses(23) and he also took the opinion of Dr Edgar
Mizzi on the telephone, who later informed them that the Prime
Minister wanted a decision
quickly. All four witnesses
testified as to the nil value of the shares under the prevailing
circumstances; at that moment it had been impossible for any shareholder
to try to sell his share and
to receive any price for such shares. It was claimed that any valuation
of the shares in the future would depend on some action which might be
taken to reactivate the Bank.
Dr Mizzi was then called to give evidence in Court and he assured
the Judge that at that stage the shares had no value because the license
was suspended and anyway Government was taking over the Bank. Above all, it would be in the
interest of those shareholders who, themselves had deposits with the Bank
that Government should save the Bank.(24) Finally the Judge spoke to the
Prime Minister and gave his decision. He authorized the mentioned
curators to attend the extraordinary general meeting and sign the deed of
transfer without compensation because on that day the shares in question
had no value and the probability of their regaining value was
nonexistent. It is
important to note that Mr. Alfred Delia, despite the Court's
authorization, did not sign the transfer of the late Marquis John Scicluna
and neither did he counter-sign that of the son, Marquis Joseph
Scicluna. Another point to be remembered is that the
extraordinary general meeting was never called. The signatures were gathered
individually. Prime Minister presents Bill in Parliament In
Parliament that evening(25), Mr. Mintoff informed the House that
Government had an urgent piece of legislation to cater for the NBofM
situation which he wanted to pass through all its stages in that same
session. A
Council of Administration would be set up to continue the business; this
being imperative to save the industry of the Island. He said that
Government was taking on a great responsibility in taking over the Bank;
no other Government would shoulder it. He made it incumbent on the
Opposition to cooperate in solving this national crisis, and in fact they
did. They
were allowed ten minutes to study the law, - that is, 69 seconds for each
page. Notes to the
above:-
(22)
Marie, wife of Dr Philip Attard Montalto; Eileen, wife of Mr.
Adrian Busietta and the brothers Alfred and Anthony Sant Fournier and
their descendants. (23)
Dr Philip Attard Montalto, Dr Robert Staines and Baron Patrick
Scicluna and Mr. Louis Galea. (24)
N.B. Both the Scicluna's and the Sant Fournier's had deposits with
their Bank (25)
Cf. Parliamentary Debates, Vol. 144 pg. 914 et seq.
The Prime Minister explained that the law was being enacted in
anticipation of the consent of the shareholders having two thirds majority
of the shares. Up till then 5,900 shares had been
transferred out of the 9,800 and in all, 6,543 shares were required. Furthermore, there were 1,109
shares about which the Second Hall of the Civil Court was still
deliberating; hopefully giving its decision before the law was
enacted.(26) He said that
provided the shareholders keep their word, Government would be ready to
support the depositors despite the fact that the situation had worsened;
however, without the signatures, the Bank could not be taken over. " If the shareholders did not give
their consent," he warned, "the consequences would be much graver than
those which followed the collapse of other Banks on the Island in the
past." Again he emphasized
that Government could not guarantee pound for pound to the
depositors. Three million
pounds would definitely be provided but Government could never make an
unlimited commitment with the people's money. After all, he said, it was they
(the Directors) who made this suggestion to us and told us to convey it to
you.(27) Further on in his speech(28), he claimed that had
they followed the normal process, a Controller would have been appointed
but, the situation being what it was, the Bank would have had to be
liquidated. Had the Bank
opened that day it would have gone bankrupt. So Government was finding another
way which the law did not contemplate, in order to save the Bank. Mr.
Mintoff remarked that those who had shares could say "bye-bye" to them;
those shareholders who also had deposits would at least, save their
deposits if liquidation was avoided and there was therefore no altruism or
madness on their part.
However those who had shares only, were kindly saying that once
they lost their own, they should not cause damage to others. Therefore, he reasoned, if one
does not want to take the normal procedures there had to be a new
Bank. This Bank would pay no
compensation whatsoever and there would therefore be no question of
liquidation. Government will not be making any gain from the Bank, its
sole interest being the Lm4 million deposits and the welfare of the
industries. Again, he
reminded the House that "Jiena nista' nghid li mhux ahna ghamilniha din
il-bicca xoghol, gharnluha huma stess, il-Board of Directors." Then
Dr Mario Felice championed and praised the shareholders for their sense of
sacrifice and loyalty; many of them had renounced to their life's savings
and their shares were all they had to live on. The Government, he said, was going
to take a great advantage from their sacrifice 'which enabled the
Government to take the lead into his hands more quickly and easily. Mr.
Mintoff denied that Government had not taken any risks; as the biggest
depositor, it was Government that was making the biggest sacrifice, he
claimed. The risk was there
because Government was still not sure whether he would recover all of them
and It would take quite some time before the true state of the Bank was
established. It was a
conscious risk in the interest of the nation. Had it not been for Government's
intervention, the shareholders would lose everything. They had made no great sacrifice
because the alternative would have meant liquidation of the Bank and then
surely they would get nothing.
Thus the Bill was passed. Notes:-
(27) Cf.
Parliamentary Debates, Vol
144 pg 953. (28) Cf.
Parliamentary Debates, Vol. 144 pg 962. The National and Tagliaferro Banks (Temporary
Provision) Act No. XLV, 1973. It is important at this stage, to
expound briefly, the contents of the Act in order to appreciate its
effects and implications. The
National and Tagliaferro Banks (Temporary Provision) Act had an
over-riding effect notwithstanding any other law, commercial or otherwise
and over the Memorandum and Articles of the Banks and it had prevalence
over them in case of conflict.(29)
Therefore, the Banks were to be regulated exclusively by the Act
and any other laws were thereby ineffective. The Council of Administration was
established and given administrative powers over the Bank and its
business, subject to the directions of the Minister. It was vested with all the powers
and functions exercisable by the Board of Directors or any Director and
therefore the powers of the Board, the shareholders and of the Bank in
general meeting were kept in abeyance.(30) Furthermore, the Council was
freed from the obligation of convening general meetings of the Banks or
meetings of their Board of Directors. (31) The Prime Minister reserved the
power to exempt the Council or any member thereof from complying with any
provisions of the law in Malta in relation to commercial
partnerships. This would be
done if in the opinion of the Prime Minister it would not be possible or
appropriate in the circumstances to comply thereto.(32) One must realize that this
provision was very wide and the powers it conferred were of the most
arbitrary nature. The
Commercial Partnerships Ordinance was rendered ineffective through this
blanket provision and therefore the limited liability safeguard which is
contemplated by the Ordinance, could be lifted at any time. "Deher car li l-Gvern agixxa b'mod
li zamm f'idejh il-possibilita' ii t-theddida jattwaha u dan minhabba li
waqt is-seduta tal-Parlament in-numru ta' firem rikjest kien ghadu ma
ngabarx.1'(33) THURSDAY
13th December.
FRIDAY 22nd December. Nine
days later, in Parliament, the Opposition through Dr G.M. Camilleri
suggested that since the Prime Minister had stated that the Central Bank
had given assurance that the financial state of the Bank had been better
than the previous years and that therefore the rumours were totally
unfounded, Government should see to it that a Commission be set up to
establish
1. Who started the unjustified rumours which caused the run on the
Bank, 2. Whether there was really the danger,
with the liquid funds available to these Banks and other funds which
others wanted to place at their disposal, that the NBM could go bankrupt
or that the confidence of the depositors could not be re-established,
and Notes:- (29) Section 2
(2)&(3). (30)
Section 4 (2). (31) Section 9. (32) Section 6. (33) Court evidence of Mr. Peter Cassar
Torreggiani (13/2/80). (34) At the time he was secretary
of the Ministry of Commonwealth
and
Foreign Affairs. (35) He was Branch Manager of Barclays
Bank International. (36) He was an Accountant and Assistant
Manager of the National Bank. But
Mr. Mintoff answered that an inquiry would only be held when there was
proof of mismanagement. A
month' later he ruled out such an inquiry, saying that it would be
superfluous to find out who started the run.(37) It
must be submitted however, that the Opposition's proposal for a Commission
still holds ground. The three
point form the crux of the whole problem because, 1. the
rumours were truly unjustified and malicious and therefore 'such evident
malice, rather than being simply condemned, should be exposed"(38); 2. the
Directors were not allowed to have recourse to other Banks so as to enable
the Bank to absorb the effects of the run. The confidence of the depositors
would have been restored as it had been before in other runs, but this
possibility was not given a single chance to materialize; 3. it
is being held that due to the threats of removal of limited liability the
consent to the shareholders was invalidly obtained (vide pending court
case). JANUARY 1974. In
his New Year's broadcast on television, Mr. Mintoff assured the public
that the Bank would re-open as soon as the shareholders signed over their
shares to Government. Informal Meeting of Shareholders On January 3rd, the Directors of
National Bank and Tagliaferro
Bank called the shareholders for an urgent "informal" meeting to
discuss the Government's request for the transfer of a two thirds majority
of the shares' to the Government without compensation. They received a memorandum from
the directors' in which the events and the circumstances that had led up
to the crisis were briefly outlined.
They were informed that Government was requesting that the
shareholders who had signed the undertaking of December 12th should now
assign their shares to it.
This was necessary because the undertaking of the 12th had made no
reference to the transfer of the shares but had referred only to the
authorization to the Board of Directors to transfer the business, assets
and liabilities of the Bank for no compensation and to its ratification by
the company in general meeting.
The memorandum continued that, " it was pointed out that the
shareholders who had undertaken to vote for such a Resolution was in
reality going to surrender all his interests without consideration and
therefore he should not find any objection against the transfer of the
shares" and finally that "it was a decision which must be taken
individually by each shareholder." During the meeting, in which many questions were
put to the Directors, the shareholders were informed that the request made
to the Council of Administration for the Balance Sheet and Accounts, had
not been complied to yet and therefore the financial situation of the Bank
could not be ascertained. (
Notes:-)
(37) See
Parliamentary Debate as reported by The Times, Jan 31st, 1974, pg.
16. (38)
Roamer's Column, Sunday Times 10/12/73.
In a
declaration issued by the shareholders a month later (4/2/74) it was
stated that "nobody has clarified the situation sufficiently to enable us
to judge whether there was, or is, any necessity of a surrender of shares
for guaranteeing the full return of the depositors' money." The
Directors made it clear that the position at that moment was that those
who had already signed had an obligation to sign again the transfer of
their shares, but those shareholders who had not signed were free to make
their own decision. They had
two alternatives; either not to surrender the shares and face serious
consequences in that depositors would lose their money, employees lose
their job and the economy of the Island risk complete havoc, or to accept
Government's proposal to transfer the shares and keep the Bank going as
promised by the Prime Minister, thereby avoiding the mentioned
consequences.(39) It is
important to remember at this stage that the shareholders had still been
under fear of reprisal at the time.(40) The National and Tagliaferro Bank~ (Temporary
Provision) (Amendment) Act 1914. On
January 30th, 1974, an amending Act was passed to make further temporary
provisions relating to the NBofM.
It specifically empowered the Council of Administration to
transfer, when so directed, the business of the Banks, including all
assets and liabilities to such persons and this for the purpose of
safeguarding the interests of the depositors (41) This transfer was to
comprise all property and all rights. The direction to transfer could be
given either by an extraordinary resolution taken at a general meeting or
by a resolution in writing signed by shareholders holding an aggregate
number of shares required to carry an extraordinary resolution.(42) The Act provided for any possible
technical difficulty that could arise with regards to the transfer and for
the simplification of the legal procedures that are normally involved in
such transfers.(43) It further widely empowered the Minister of Finance to
decide on how to deal with old deposits. This was being done, as Mr.
Mintoff explained, in the interest of depositors so as to avoid a new
stampede. During the debate, the Prime Minister announced
that Barclays Bank had chosen to opt out of the agreement to avoid their
having a monopoly in the banking field and Government was therefore
pursuing negotiations with other banks. He informed the House that the
name of the Bank would be changed to Bank of Valletta and that a certain
Mr. Wright would be participating in the new Bank. The Banco di Roma and the Bank
of Libya would also participate if the conditions were
favourable. Transfer of Business, Assets and Liabilities to
Bank of Valletta. On
March 21st, 1974 the Shareholders' Association sent a letter to the
Council of Administration warning its members that what they were doing
was incorrect and calling upon them not to participate in a transfer of
business of the NBofM for no consideration on the basis of the share
transfer forms so far signed and on the basis of the wholesale and
unwarranted writing down of assets.
The Association proposed a reasonable alternative technical method
of resolving the crisis based on transferring half the reserves. But the Council and the Government
failed to show any interest.
(39) Cf. report by the Times of Malta of Jan
4th, 1974. (40) Cf. Memorandum of shareholders,
issued subsequent to ('this meeting. (41) Section 4 (1) (42) Section (2) (43) Section 1121 ~2)(b)&(c). The
actual transfer of the NBofM's business, assets and liabilities was
effected by the Council of Administration to the Bank of Valletta, on
March 22nd, 1974 (44) - that is, over three months after the Bank had been
taken over. The transfer was
exempted from stamp duty and from the statement for the purposes of the
Death and Donation Duty Act, 1973. Accordingly a Legal Notice (45) was
presented in Parliament whereby the powers and duties of the Council of
Administration as to the business, assets and liabilities of the National
Bank of Malta ceased to have effect without prejudice to anything done or
omitted to be done. Therefore, first the National Bank of Malta Ltd
and then the Council of Administration were deprived of any power over the
Bank's business, assets and liabilities. The important point however is
that they both retained their legal entity, thereby remaining in existence
but with no possibility of resuming their functions. They have both been left in
suspended animation. On
the day of the transfer, in a television broadcast, Mr. Mintoff announced
the opening of the Bank of Valletta and spoke about how it was going to
operate. He said that the
signatures of shareholders who had already given their consent to the
transfer of their shares were being gathered. He said that it had become clear
that there would be serious delay for capital that that been promised from
outside sources to be forthcoming arid on the advice of the Council of
Administration, Government had opted for an all-Maltese Bank with sixty
per cent of the shares would be in Government's name and a 40%
shareholding belonging to the Malta Development Corporation with the duty
to sell them to the Maltese public.
He stated that once the people were risking their money, through
the Government, the Development Corporation and therefore the public would
buy their shares in the new Bank at a price which was 25 per cent higher
than the price for Government and as an incentive no stamp duty would be
payable on the transfer of shares from the Corporation to the public. In
his statement, the Prime Minister informed the public that the National
Bank's liabilities exceeded its assets by a quarter of a million pounds
considering the shareholders' capital and its reserves. This went to prove, he said, that
it was not true that the Labour Government wanted to rob the Bank
and again, that "the Government would not have intervened if the Directors
of the NBM had not asked the Government to do so" and naturally if there
had not been at stake the depositors' money and the employment of
thousands of workers." He
expressed the hope that there would be an end to frivolous talk and that
no one would waste energy and money in lawsuits.(46) Then he gave details as to
the measures that the new Bank would be imposing with regards to deposits
with a possibility of withdrawing up to 30% of their deposits. On March 24th, the Bank of Valletta was opened
with its assets totaling Lm37.8
million. Government had provided Lm3.3 million with another Lm3.3
million on call - to be used if the necessity arose. These assets were to guarantee the
depositors' money and other liabilities. (Notes:)
(44) L.N. 27 of
1974 National and Tagliaferro Bank (Cessation of Certain Provision)
Order. (45) The
transfer was to take effect on the 24th of March. (4) Cf. The Times of
Malta, Saturday 23rd March, 1974. pg.1 & 10. An
important and legitimate point that has been raised by many shareholders,
of the Bank is that the period of time which the National Bank was under
the control of the Council of Administration until unrestricted banking
business was resumed, was indeed a long one when one considers the rough
and hurried manner in which the shareholders were treated; forced to give
up their Bank overnight for no compensation whatsoever without their
Directors being allowed to borrow money themselves from foreign Banks. The
depositors' money remained frozen all through the three months anyway and
had the Bank been allowed to retain its identity and its property, perhaps
under the guidance of a Controller and with the faculty of restricting the
withdrawal of fixed deposits, it may well have been able to survive the
crisis and regain its financial stability. To this effect, it is apposite to
quote from the letter which the Shareholders Association had sent to the
Council of Administration "The apparent lack of
success of the Prime Minister in his successive negotiations with other
third parties brings into relief the questionable basis of the human
values being promoted and the fact that justice cannot be seen to have
been done by the Prime Minister's chosen method of relationships with the
shareholders." National Bank of Malta's Audited
Accounts. Three days after the opening of the Bank of
Valletta, Government laid on the Table of the House of Representatives the
accounts of the National Bank of Malta for the financial year ending
December 31st, 1973, as audited by Deloitte and Co. The profit and loss account showed
a loss of Lm3,184,000 which, the auditors attributed to the large
additional charges which the Council of Administration had considered
necessary to provide further for bad and doubtful debts. The liabilities exceeded the
assets by Lm253,000. The
provision for known bad and doubtful debts of the National Bank amounted
to Lm5,030,000 and of the Group, Lm 5,982,000. It was explained that, when
compared with similar provision at the end of 1972 of LM2,378,000, there
results an increase of Lm3,614,000. This provision had to be arrived
at by making specific provisions on the basis of individual advances which
were considered to be partly or wholly unrecoverable, as well as reserving
on these advances. The
Council of Administration had also made a general provision to cover
possible losses, having regard to the need of maintaining the Group's
liquid assets and to the fall in property prices from the abnormal
level of 1969. The
provision for the latter had been calculated 2)
after taking into account collateral securities and specific provisions
against these advances. This
property index showed a devaluation of property of some 45% between 1969
and 1973 on contract sale figures and as the shareholders had claimed "it
had totally ignored the fact that during the same period, the cost of
construction had risen by some 70%." Further efforts for compensation Since the crisis, the National Bank of Malta
shareholders continued their efforts, through correspondence and personal
contact, to open discussions with the Government in order to find a form
and method of fair compensation.
In June 1974, Dr Riccardo Farrugia on behalf of the
Shareholders Association, sent a letter to the Prime Minister with a
proposal to explore the possibility of trying to reach a satisfactory
agreement to all concerned but he never received an answer. In May 1975, the Shareholders
Association sent a letter to Mr. Danny Cremona, Chairman of the Bank of
Valletta, requesting his support to the claim which Dr Farrugia had made
in June 1974 but again this was not forthcoming. Under the circumstances
it was felt that legal action had to be commenced. In January, a legal protest was
filed by a large number of shareholders where they claimed that the
payments that were being made to the Bank of Valletta in. relation to
debts for which provision had been made, were going to be considered as
profits of the Bank of Valletta9 when in actual fact, they
represented a part of the assets which they owned indirectly as
shareholders of the NBofM.
They insisted that details about the provisions. the property index
and supporting schedules should be given to the Directors without any
further delay, claiming this to amount to the oppression of the minority
shareholders of the Bank. Furthermore, they claimed that the estimate of
the immovable property of the Bank had been given at their book value less
depreciation thereby not reflecting their true worth. N.B.M. Investments Limited. In
June 1976, the Shareholders Association formed a company with the sole
purpose of instituting collective court action, The shareholders were invited to
exchange one of their shares or their litigious rights for equivalent
shares in the new company. A
case was subsequently instituted on March 1977 by the Directors of the
NBofM Investments Ltd against the Prime Minister, the Governor of the
Central Bank, the Minister of Finance and the Members of the Council of
Administration, challenging the validity of the transfer of shares of four
shareholders of the National Bank for no compensation... The grounds for the nullity of the
transfers were four : a) they were not duly stamped according to law, b)
they were not effected by a public deed, c) they had no ‘causa’
and d) they were affected by a vitiation of consent because of error and
extortion by violence. This
court case has been pending before the Commercial Court for the last ten
years. Several witnesses have given evidence upon the facts and the case
is awaiting the new Prime Minister to assume the acts before the case goes
before the Judicial Assistant for the compilation of further
evidence. Dr
Riccardo Farrugia, who holds a senior appointment in the banking sector is
today using his good offices in order to have this important matter
reviewed. |
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The National Bank of
Malta's trial in 1973 was brisk and the sentence of death summary. |
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32 Years of Justice denied |
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