National Bank of Malta compensation conundrum
By judgment of March 26, National Bank of Malta (NBM) shareholders (in most cases their heirs as very few of the original shareholders are still around) who instituted proceedings against the government 32 years ago were finally awarded compensation by the court.
Unfortunately, the court’s decision is not at all clear on how the pecuniary damages are to be apportioned fairly among the plaintiffs. The table below better explains the conundrum.
It seems very odd that the judgment refers to the total number of plaintiffs involved in each of the two court cases (49 and 33). Dividing the net damages by the number of plaintiffs produces an average of €1.35 million for each of the plaintiffs in both ‘groups’.
But, surely, that is not an equitable distribution of damages for the simple reason that the plaintiffs in both court cases did not own the same number of NBM shares. Indeed, according to NBM’s share register of ordinary and preference shares, the range of holdings extends from just one share to as many as 2,980 shares in the case of the largest shareholder (a corporate entity).
Thus, it would be a travesty of justice were one to conclude that the damages awarded are to be shared equally among the number (individuals or corporate bodies) of plaintiffs in each of the two court cases. The only and obvious equitable reasoning is for the damages to be shared among the plaintiffs on an amount per share basis.
I understand that this vital point was included in all three appeals (as one shareholder decided to go it alone) lodged by plaintiffs on April 15. The two main appeals included other considerations mainly of a legal nature and, thus, outside the scope of this article, the main purpose of which is to illustrate the compensation allocation conundrum.
Assuming, by way of an example, that, in 1973, the 82 plaintiffs held between then a total of, say, 8,000 shares (72 per cent) out of the NBM’s total issued and paidup share capital of 11,100 ordinary and preference shares of Lm100, the compensation per share works out at approximately €13,896 per share.
However, the plaintiffs have appealed the court’s decision to reduce the gross compensation awarded of €198.51 million by 30 per cent and then by a further 20 per cent to €111.16 million as shown in the table. Therefore, in the event that the plaintiffs’ claim is adjudged by the court of appeal to be justified, the potential compensation per share rises to €24,814.
Even the higher figure of €198.5 million remains well below the amount of dividends; share sales etc. that the government derived between 1974 and 2015 from its investment in BOV. As at the date of my affidavit filed in court (20.01.15) these totalled €170 million (taking account of inflation only to that date and, so, the amount is now much higher).
In addition, the government’s existing 28.36 per cent shareholding (25 per cent directly plus 3.36 per cent through two wholly-owned investment companies) in BOV is worth approximately another €234 million at the price of €1.42 per share at the time of writing this article.
This makes a total government gain of over €400 million, not including inflation since 2015. Not bad going considering that, in 1974, the government’s outlay was Lm3.3 million (€7.7 million) as additional capital in BOV.
With the NBM’s same staff and branch network of 27 offices spread over the main towns and villages of Malta and Gozo, BOV made a pre-tax profit of Lm1.1 million (€2.56 million) in its first nine months of operations to 31.12.74!
For the record, the NBM group had produced pre-tax profits totalling Lm3.02 million (€7.04 million) over the five years to 1972, an annual average of €1.41 million.
“The plaintiffs in both court cases did not own the same number of NBM shares
Anthony Curmi is a former senior bank executive in Malta, the UK, Italy and the Bahamas.*