‘€363m Deiulemar case posed existential risk for BOV’ - chairman

Bank of Valletta risked its very existence had it continued to contest - and lost - a €363 million claim by Deiulemar bondholders, the bank’s chairman told BusinessToday.

Gordon Cordina said that if the bank had pursued litigation with the bondholders of the defunct Italian shipping company, it would have taken it a minimum of 10 years to recover.

“The settlement with Deiulemar reflects the huge risks we faced, risks that were even existential,” he said. “If we had proceeded with the litigation and lost, it would have taken us at least 10 years to recover and we could not have survived that.”

This is the first time a senior BOV official has publicly acknowledged the risks the bank faced in the case.

Cordina said the claim had been studied and discussed extensively and all 13 members of the bank’s board of directors had unanimously agreed to the settlement due to the risks the bank faced.

On 8 February, the Tribunal of Torre Annunziata in Italy, presiding over the case instituted against Bank of Valletta by the curators in bankruptcy of the Deiulemar Group, had ordered the bank to pay €363 million.

BOV appealed the judgement in March and then engaged with the curators to explore the possibility of reaching an out of court settlement.

On Tuesday, the bank announced it had agreed to pay a settlement of €182.5 million.

Cordina said that the bank had already made a conservation of capital of €363 million following the Italian court’s judgement.

With the settlement now agreed upon, the remaining funds in escrow would now be released.

“This will provide the bank with a surplus to use to expand our credit facilities,” Cordina said.

Asked if this meant BOV would now be in a position to approve a dividend for shareholders, Cordina said he could not commit to a dividend before having the approval of the regulator.

“But this does place in a better position to be able to issue dividends,” he said. “It has always been our intention to move towards payable predicted dividends and we are now better placed to do that.”

Cordina would not comment on decisions taken by previous boards, as in the case brought by investors in BOV’s La Valette Multi-Manager Property Fund.

In that case, the bank pursued litigation and did not seek a settlement outside of an initial offer that was refused by many of the investors.

“As non-executive chairperson heading the board of directors, my duty is to safeguard the collective interest of our shareholders,” Cordina said.

“The Deiulemar posed huge risks to the bank and that is why it merited a settlement.”

Litigation

Bank of Valletta’s agreement to pay €182.5 million to settle the €363 million Deiulemar claim brought to a close a decade of litigation that cost the bank millions in payouts and dented its public image.

In September 2020, BOV agreed to pay €26.5 million in a settlement with the Swedish Pensions Agency to avoid further litigation on its role as custodian of Falcon Funds.

In December 2020, a nine-year legal battle for hundreds who invested in BOV’s La Valette Multi-Manager Property Fund finally come to an end when an Appeals Court ruled in favour of the bank.

Deiulemar

The bank was appealing the forfeiture of a €363 million precautionary security last December, when it engaged with the curators of the bankruptcy of the Deiulemar group, to explore the possibility of a mutually satisfactory resolution to the dispute out of court.

The claim was made by the 13,000 bondholders of the defunct Deiulemar shipping company.

The bank last year had attempted an offer of €50 million for Deiulemar bondholders to settle the claim out of court, but this was rejected.

Under the Torre Annunziata proceedings, BOV was being requested to pay an amount equivalent to the value of the Deiulemar shares which had been settled on trust, with the bank as trustee. Bank of Valletta disputed the valuation of these shares, saying these were worthless following the bankruptcy of Deiulemar Group.

In 2009 Bank of Valletta had taken over a trust that held €363 million in assets of the Deiulemar company, which filed for bankruptcy in 2012.

A Rome criminal court in 2004 had already determined that the Deiulemar company had under-declared liabilities of €700 million. In 2014, seven members of the three founding families of the Deiulemar company were jailed for up to 17 years for illegal financial transactions, owing €800 million to creditors.

The European Court of Human Rights had turned down BOV’s claims of unfair treatment in Italy, because the bank had not exhausted all its remedies in Italy.

The bank had complained it was being denied a fair hearing in the courts of Torre Annunziata, a small provincial town where the majority of creditors seeking compensation from BOV originated.

Swedish Pensions Agency

Falcon Funds was a Swedish private pension run by a Maltese company, but whose investment decisions were vitiated by backroom dealings with its investment manager Temple Asset Management.

Over €247 million was lost, resulting in the shuttering of Temple in Malta, criminal action in Sweden against Temple director John Farrell; a two-year ban from the MFSA on holding approved positions for Falcon directors Tonio Fenech, the former Nationalist finance minister, and Ian Zammit and Joseph Xuereb; further court action in Malta from BOV against a host of entities involved in siphoning off cash from the pension fund; and the imprisonment of chief instigator and fraudster Max Serwin in Sweden.

A total €32 million, including insurance compensation, were returned to Falcon Funds savers, the Swedish pensions agency said.

La Valette Fund - €26.5 million

In 2020 and 2021, Bank of Valletta won a series of appeals against decisions in the name of investors in the La Valette Multi Manager Property Fund.

The bank won the appeals from a decision given by the Arbiter for Financial Services in relation to a number of property fund claims.

BOV had filed an appeal before the Court of Appeal from a series of decisions delivered by the Arbiter for Financial Services in 2018, where the arbiter found in favour of the claimants against the bank.

Back then the arbiter ordered BOV to refund millions in lost savings with interest, due to alleged mis-selling - specifically €3.4 million plus legal interest of 8% from the date of complaint, to some 500 aggrieved investors.

The investors had complained that the 75c share offer by BOV in 2011, offered just weeks before sanctions were issued, was insufficient. A further 25c share compensation ordered by the MFSA was also considered insufficient.

Those complaints had been submitted by stockbroker Paul Bonello of Finco Treasury Management and law firm Refalo Zammit Pace in July 2016.

In the original findings, the arbiter had said BOV’s initial 75c offer was a breach of consumer rules, and that “the majority of clients were elderly investors who had expected to be entering a safe investment with operators who knew more than they knew, and who would observe the prospectus rules they themselves issued, with self-imposed restrictions they had to observe. This did not happen as observed by both the MFSA and the arbiter.”

The MFSA also fined BOV six times between 2011 and 2012 for mis-selling the fund to inexperienced investors and for breaching its own investment restrictions.

Around 2,300 investors had then accepted the bank’s subsequent compensation of 75c per share on condition that they waive legal action against the bank should the MFSA find it had breached property fund conditions.

The Appeals Court declared that the “settlement agreement” of May 2011 between the bank and the property fund investors was not deemed to be a matter of review for the court in terms of the EU’s Unfair Contract Terms Directive.

Therefore the Arbiter’s decision which upheld the complaints of around 400 investors, and awarded compensation in excess of €3.4 million plus interest, was overturned.