The agony of BOV shareholders – Anthony Curmi

As a shareholder of BOV, for several years I have closely followed the ups and downs of the bank and I can only agree with the editorial (May 7) entitled “BOV shareholders owed an explanation”.

BOV shareholders suffered the losses suffered by the bank because of the claims it was forced to pay regarding its defunct real estate fund (3.4 million euros plus interest and charges) and the Agency case Swedish Pension Fund (26.5 million euros).

But those losses are dwarfed by the recently announced €182.5 million out-of-court settlement in the bankruptcy of Italian shipping group Deiulemar which resulted in a claim by receivers of €363 million against BOV, filed with the Italian courts in November 2014.

I start by going back to the bank’s 2016 report (shortly before the first signs of trouble with a trust set up for Deiulemar became public) when then-chairman John Cassar White reported a profit before tax of €145.9 million, which included a one-time gain of €27.5 million from the acquisition of BOV’s shares in VISA Europe upon its takeover by VISA Inc. The bank was then in full growth by paying good dividends to shareholders every year.

It was the time when the bank was euphoric about its performance.

Financial consultants like Alfred Mifsud (who was later appointed as one of the bank’s directors in December 2019) said in an article (“Flying high as the economy”, November 7, 2017) that the 2016 results ” show such stellar performance as that of the general economy… BOV’s key performance indicators all tell a story of stability and efficiency”.

Only a year later, commenting in the 2017 report (which covered the 15-month period to December 31, as the bank changed its fiscal year-end from September to December), the new chairman, Taddeo Scerri, launched a first warning saying that the bank was reviewing its risk appetite and continuing to reduce its fiduciary activities. For the aforementioned period, BOV recorded a profit before tax of 174.7 million euros (139.76 million euros annualized). A still respectable result with a proposal to pay a gross dividend of 42 million euros to shareholders.

The following year, 2018, the bank posted a pre-tax profit of just 71.2 million euros, but this after setting up a special litigation provision of no less than 75 million euros mainly to meet the Deiulemar case because, at that time, legal proceedings had been instituted in Naples against the BOV. I quote the President’s statement and the more general information provided in the review by then-CEO, the late Mario Mallia.

“The bank is currently involved in a number of legal proceedings, the most significant of which arises from its past involvement in trust and custodial activities. Management remains satisfied, based on legal advice, that the legal position of the bank in these matters is sound. Nevertheless, the Board of Directors deemed it prudent to establish a provision of 75 million euros to cover possible losses related to litigation and claims. This is a judgment based on on the situation prevailing in December 2018 and which is under continuous review in the light of developments.

Shortly before the 2019 GA, BOV had suffered a cyberattack in February during 11 fraudulent payment transactions for the equivalent of 12.9 million euros. This, and the COVID pandemic, led to the postponement of the general meeting scheduled for May to November, when it was reported that the bank had recovered around 10 million euros of the fraudulently taken funds.

Equity will be eroded by an additional €102.5 million-Anthony Curmi

Referring again in his 2019 statement to the Deiulemar litigation, the President recalled that it was “a legacy of a fiduciary structure from 2009, which could be pronounced against the bank in the court of first instance” . For this reason, the board has decided to increase the litigation provision covering the two main litigations by an additional €25 million to €100 million.

In one of the notes to the accounts, it was stated that “100 million euros are supposed to better reflect the resulting cash outflows, including possible prolonged legal costs and a negotiated settlement”.

As a result, and after taking into account “additional costs linked to a transformation program of 23.9 million euros”, the bank posted a pre-tax profit of 89.2 million euros; slightly better than 2018. A proposed gross dividend of 2.64c was ultimately not paid due to a decision by the European Central Bank which affected all banks in the EU.

Since then, BOV shareholders have been left without any dividend income. In his statement dated March 30, 2021, accompanying the 2020 report, the new chairman, Gordon Cordina (appointed October 2020) said that “regulators do not recommend the distribution of dividends, in order to ensure that the bank is well positioned to meet the high standard of capital and support the local economy until the end of the pandemic”.

No wonder, as BOV posted a pre-tax profit of just €15.2 million (after a net increase of €65.1 million in net impairment losses), down €74 million from to 2019. This was attributed to the impact on the companies most affected. by the pandemic crisis, in sectors such as tourism, accommodation, catering, etc.

Regarding the Deiulemar litigation, CEO Rick Hunkin said that “the claim remains outstanding and continues to be material. The group is adamant, based on sound legal opinions (including one from Italy’s leading independent authority these matters) that this claim is completely without merit”. He further stated that “the board considered that it made commercial sense for the group to seek to resolve this claim at a level not exceeding the potential impact on the costs… No additional litigation provision beyond that taken in the past two years is deemed necessary and we will show strong resolve until the matter is resolved”.

However, in a statement made by BOV – on May 5, 2022 – the bank announced that an amicable agreement had been reached for the claim to be settled at 182.5 million euros.

The impression given is that this is very good news as the amount represents around half of the Conservatives’ initial request of €363 million. The fact remains that the specific provision constituted by BOV for this incident only amounts to 80 million euros and that, as a result, equity will be further eroded by 102.5 million euros. euros. Surely not enough to blow his trumpet!

BOV has announced that its 2022 Annual General Meeting will be held virtually, for the third consecutive year, on June 2 but, at the time of writing, shareholders are still awaiting the corresponding notice and documentation, including the report 2021 annual report and the bank’s financial statements.

The aforementioned BOV statement made a few days ago on the settlement of the Deiulemar claim included information on the bank’s financial performance in the first quarter of 2022, but it did not indicate whether a dividend was proposed at the next general meeting. 2022 annual.

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