Thousands of Bank of Valletta shareholders are small investors who depend on dividend payments to supplement their income. For a long time, they relied on the bank doing the right things to ensure that their investment gave an adequate return, even if many realised that every investment entails taking risks.
The trust that linked shareholders to the bank’s top management has been shaken in the last few years. Strategic decisions taken over a decade ago have resulted in the depreciation of the bank’s shares and the suspension of dividend payments. BOV’s half-yearly results confirm that the chronic pain suffered by shareholders continues to persist.
Last week, BOV announced half- yearly operating profit of €26 million that was more than wiped off by the final, out-of-court settlement of the Deiulemar trust litigation, which amounted to €182.5 million. The net loss for the first six months was €76.6 million.
The chairperson, Gordon Cordina, described the bank’s mid-year performance as strong, saying the interim results were “a clear indication that the grounds are being set for a bright future for BOV”.
Shareholders are unlikely to be impressed with hubris from the bank’s top management. They still have no explanation as to why bad strategic decisions taken years ago have eroded the value of their investment. The Property Fund saga resulted from the bank adopting a sales strategy that relied on hard selling of complex investment products to mainly inexperienced retail investors.
At the same time, the bank started selling trust services to international clients without fully understanding the risks involved and having the right processes to manage these risks.
So far, neither the banking regulator nor the present board of the bank has given an adequate explanation for why shareholders have to suffer due to these management failures. The bank must be more transparent with its shareholders and engage in a greater degree of self-questioning if it is ever to convince its owners that it has a “bright future”.
This year’s half-yearly results are only a tiny piece of the mosaic that makes up the governance culture of BOV and the country’s economic community. In a small country, personal and professional relationships are often built over many years and sharp disagreements may cause friction and upset the smooth functioning of the system.
Still, the absence of sufficient self-questioning by regulators and financial services leaders is behind the various governance failures in the last two decades.
It is still unclear if and when BOV will need to prop up its capital to fill the Deiulemar settlement’s hole and prepare for any shocks that may occur in the present challenging economic circumstances. As the main shareholder, the government will invariably pump in taxpayers’ money if the ECB mandates a capital increase.
The negative interest rate era may soon be over; this should be good news for all banks. But, while remaining the leading financial supporter of the Maltese economy, BOV needs to rediscover the strategies that lead to long-term sustainable operations. Costs need to be contained while good customer service supported by modern technology must be the bedrock of the bank’s project to win over the support of customers, shareholders and investors.
The judgement is still out on whether BOV has indeed learned from the strategic failures of the past. The bank’s management could start to win over the trust of shareholders by engaging in more transparent communication on the challenges facing the bank and the Maltese economy.