Source: George M. Mangion¸ Partner PKF Malta¸ July 2012

Article published on the Malta Independent on 22 July 2012

News of the resignation of both the chairman and CEO of Barclays shocked the international media following a scandal allegedly run by the bank for over five years involving Libor rate rigging. Barclay’s CEO Bob Diamond blamed a “series of unfortunate events” for his shock departure. The banking chief admitted feeling “physically ill” when he woke up to the reality that bank traders had manipulated the key Libor rate. All along he strongly denied he was personally culpable for their actions. Perhaps reality is always a sour reminder of what went wrong with depositors and their precious savings. On another occasion¸ Barclays was also in the news for allegedly resorting to tax evasion in the UK. When PricewaterhouseCoopers (PWC)¸ its auditor¸ raised concerns over two tax avoidance schemes created by the bank that were later rejected by the tax authorities as “highly abusive”. PWC is understood to have raised concerns with the bank over the structure of the schemes that would have saved it from paying hundreds of millions of pounds in tax.

At this juncture¸ allow me to switch to the local scene where I would like to comment on our two main banks. They compete fiercely for their share of the market¸ each saying they offer superlative services. To start with¸ ever since its takeover of MidMed Bank¸ HSBC has played its cards well and made excellent profits. It discreetly sends the message that both as a local and global bank¸ it never reported any financial mishaps and was always in the limelight as the exemplary bank even at the peak of the banking crisis. By comparison¸ Bank of Valletta prides itself for passing all stress tests and enjoys a good capital structure¸ but the fly in the ointment is the unfortunate collapse of a property fund. This tainted the waters with local investors. Briefly¸ the story concerns the loss of €50 million in a property fund administered by La Valette Multi Property Fund managers¸ having as its major shareholder and custodian the Bank of Valletta. One of the funds that collapsed included the Belgravia property fund that left a huge hole in the balance sheet. The Sicav’s managers denied any blame and stressed that property values had been hit by the global financial crisis at the same time that new financing dried up. It came as no surprise that the financial regulator¸ jolted by various collective legal claims instigated by aggrieved unit holders started to investigate. After two years¸ it concluded that the manager of the fund had wrongly applied and wrongly monitored the application of investment restrictions laid down in the fund’s prospectus. In 2011 and 2012¸ the MFSA found BOV in breach of financial regulations in connection with the La Valette’s multi-manager property fund in the course of three investigations. In contrast with the Barclays case¸ no director or top official offered to resign¸ as the culture of resignations does not exist in Malta.

Unfortunately¸ there is no respi