Dissett dissected

Dissett of Saturday 3rd June 2012 tackled the claim for compensation by former shareholders of the National Bank of Malta where I was invited to defend my views expressed in this blog that no such compensation is properly and equitably due.

Unfortunately it was not possible to debate in a calm manner.   Out of a programme exceeding 71 minutes ( including commercial break) I had the microphone for about 13 minutes and many of these were amid interruptions from my debating colleague who appeared more interested in preaching the 'truth' that Mintoff stole their shareholding rather in debating how and why the National Bank was facing a crisis of confidence from its depositors and what its true worth was on takeover.

Dissett can be streamed through this link:

Dissett 03 06 2012

Yet two important points managed to emerge from monologue that my debating colleague tried to enforce on the programme:

Firstly that the Central Bank Governor at the time, about  a week before the run on the Bank started had, during a game of golf, verbally warned Frank Cassar Torreggiani, then Chairman of the National Bank, to 'put his house in order as it will happen'.   Given that the Central Bank had been conducting inspection on the way the National Bank was operating this warning was nothing if not showing concern that the National Bank was a house out of order and that such state of affairs was creating a strategic threat to the stability of the institution.   Any other interpretation, including that the Governor was warning of a foul takeover plan being engineered by Mintoff, is a figment of imagination that bear no proof in fact whatsoever.

The other point was that if the Central Bank in denying lender of the last resort facilities as it was legally obliged to do if in its judgement the National Bank's problem was one of simple and temporary lack of liquidity, was making an implied statement that the Bank was insolvent and needed a fresh injection of capital that in those circumstances only the government could provide, then the Central Bank should have conducted studies to persuade the Board of the National Bank of their state of insolvency.

This shows poor knowledge of what can be done during a crisis when decisions are needed fast to put out a fire and there would be no time for studies and detailed reporting.    With depositors waiting in line to withdraw their money, the Central Bank needed to make a judgement there and then whether to extend lender of the last facilities appropriate for temporary illiquidity problems, or given their knowledge of the bank through their inspectorate,  whether in their judgement the problems at the bank were more structural needing an infusion of fresh capital.

The Central Bank made the latter decision but it is unthinkable that this decision was not explained in meetings between the Central Bank and the Management of the Bank who surely must have been briefed of the findings of the inspection exercise.   The Central Bank Governor at the time still refuses to comment publicly on the matter saying that as the case is sub judice he has given his views on this matter to the Courts.   Unfortunately the Courts are still deliberating.

But anyone who expected the Central Bank to hesitate about their decision while depositors were queueing at the doors does not know what he is talking about.   The Bank of England did exactly what the Central Bank of Malta did when in 2008 they were faced with a run on Northern Rock.

The issue of what compensation was due to the former shareholders of Northern Rock was not, and could not, be settled at the time when the crisis was peaking with depositors panicking.    The situation was only calmed after government intervened guaranteeing all Northern Rock deposits and essentially nationalising it.

Subsequently reports were drawn up by independent parties to see what compensation if any was due to the Northern Rock  former shareholders.

These reports may be accessed on this web-site:

Northern Rock compensation documents

All studies showed that no compensation was due to former Northern Rock shareholders.    It could hardly be otherwise as when a Bank loses the confidence of its depositors it has practically lost the very foundation on which it is built.

Two points come out from these documents.  Firstly they were more elaborate and independent than the ones done subsequently by The Central Bank and audited by Deloitte on the basis of which it was decided that no compensation was due to National Bank shareholders.   Obviously it should be borne in mind that financial regulations and governance standards in 2008 were much more developed than they were in 1973.

Also to be noted is the speed with which decisions were taken by the Independent Valuer and by the Upper Tribunal and the transparency with which such process has been conducted.

These events re-affirm my views that no compensation is equitably due to the former shareholders of the National Bank.  But justice needs to be done and needs to be seen and perceived as being done.

An out of court settlement would defy the perception of justice being done as it would reward the shareholders at the expense of the taxpayers without undergoing fair process.   But we have much to learn from such instances about how matters should be handled expeditiously and where necessary through the appointment of ad hoc technical tribunals rather than through the slow machinations of the courts of law.