Banking is one of the most heavily regulated industries, as the oil that lubricates the business of banking is mainly depositors’ and shareholders’ money. When an institution like Bank of Valletta has thousands of small shareholders who often rely on the dividend payment to top up their income, intrusive regulatory oversight and effective operational management are crucial.

In a company announcement, BOV informed shareholders that it has reached an out-of-court settlement with Italian regulatory authorities to settle a legal dispute by paying €182.5 million. The Italian courts had previously ordered the bank to pay €370 million after they found it guilty of mismanaging a trust for Deiulemar, a shipping company that operated from Naples. BOV argues that the settlement attempted to find a “pragmatic, commercial solution” to this 13-year legal dispute.

BOV shareholders, who have not been paid dividends for quite some time, have a right to ask why the value of their shares has been dented so much because of the failure of the bank’s management. They need to know who was responsible for this failure, which started in 2009 when the bank agreed to establish this trust. More importantly, they need to know whether those responsible for regulatory oversight failure and operational management failure have been held accountable.

The Malta Financial Services Authority needs to reassure the thousands of BOV shareholders that it has, at least, conducted an ex post facto investigation to establish what was behind this massive failure. Are the MFSA officials responsible for the bank’s regulatory oversight in 2009 still responsible for overseeing the conduct of financial institutions?

Similarly, the present board of the bank needs to give convincing explanations as to why the board and executive management in 2009 failed to prevent this failure that is today costing shareholders so dearly. Are directors who served on the board in 2009 and the CEO still serving as directors in financial services or other companies?

The board and the management committee are ultimately responsible for ensuring the bank’s risk management framework and processes are robust. They are expected to ensure that depositors’ and shareholders’ interests are not discarded because of incompetence, mismanagement or other irresponsible behaviour by those approved by the regulators to run the bank’s business. 

While gross mismanagement in international banking is, unfortunately, not rare, regulators almost always ensure that those responsible are held accountable. At a minimum, they are prevented from recycling themselves in other positions of trust. Malta’s reputation in financial services has taken a battering in the last few years. The Deiluemar saga will do nothing to improve Malta’s image as a reputable financial services jurisdiction.

BOV may need to increase its capital to meet current regulatory capital adequacy criteria. It is more than likely that the government, as the biggest shareholder, will have to provide the bulk of this capital increase by forking out more taxpayers’ money in the bank. BOV’s small shareholders have seen the value of their shares plummet in the last few years. They are unlikely to want to show more faith in the bank by buying new shares, especially as the prospects of dividend payments remain uncertain.

The Deiulemar disappointment is tempered by the announcement that, in the first quarter of 2022, BOV made a good profit of €22 million. This positive development is qualified by the bank’s concern about how the Ukraine conflict could ultimately affect its business. Rating agency Fitch has downgraded the BOV long-term issuer default rating to BBB- from BBB.

BOV shareholders will, undoubtedly,  expect more meaningful explanations of these developments at the next annual general meeting.

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