Tuesday, July 31, 2018

Bank of Valletta makes €88.5m profit in first 6 months; significantly reduced due to litigation

Bank of Valletta registered an €88.5 million profit in the first six months of 2018, which is far higher than the €67.8 million profit recorded for the same period last year, however this was reduced to €13.5 million after a litigation provision.

The bank presented its interim half-yearly results to the press.

The decision to make a €75 million litigation provision was made by the bank's board after discussing it with supervisory authorities, the banks' consultants and auditors. Chairman Taddeo Serri stressed that the provision in no way means that the bank is admitting wrongdoing or accepting liability, and stressed that it is just an accounting provision just in case, in agreement with the supervisory authorities.

The bank has, however, decided not to issue any cash dividends for 2018, instead reinvesting the cash into the bank's capital.

The three major cases, one of which has not reached the court stage, are the Deiulemar case, the Falcon Funds case and the La Vallette Multi Manager Property Fund. The Chairman stressed that this provision is just the bank taking precautions nothing more.

The most material case, the Chairman said, is the Deiulemar case being heart in Torre d'Annunziata . He said that the bank has a very strong legal case, but the bank is worried about the environment in the region, mentioning that 13,000 of the 40,000 residents were bond holders in that company group.

Discussing the bank's legal plans, along with their legal consultant Louis de Gabriele, they said that the Italian constitution might go against the European Court of Human Rights, in terms of the right to having a case heard before an impartial and independent tribunal. They argued that Italian law provides for this in criminal cases, but not in civil cases, and as such the bank is working on moving up through the Italian courts to create a constitutional case on the issue. The bank feels that they cannot receive a fair hearing in Torre d'Annunziata as while protests in the area are not directly against the bank but against the Deiulemar group, the only entity capable of dishing out the sums required is the bank. The bank's representatives highlighted that the bank had become trustee of the shares in three trusts linked to Deiulemar in 2009, worth a total of €6,000 back in 2009, and in no way received the €363 million being requested by the other parties.

The bank said they considered recusing the sitting judge due to concerns over her impartiality, but noted that it took the Court of Appeal three months to find 3 judges who did not have a conflict of interest in the case, and as such want the case moved to a different location outside of this city.

On the Falcon funds issue, he said that there are currently discussions with the parties involved, but there is no legal case yet.

Turning back to the results, the bank noted that non interest income increased by 16%. The bank will also continue the de-risking of non-core business, such as reducing the bank's risk with international corporate who, for example, are of high risk or where it is hard to decipher who the Ultimate Beneficial Owner is. This will affect non-profitable areas, but the bank's heads said it would not affect local loans. It would be in areas deemed too risky and where the potential profit does not justify the risk.

The bank's CEO Mario Mallia noted that the bank saw improvements in all aspects of operations, and that the bank's profits have been rising year-on-year. He noted strong fundamentals to support growth in core business.

Operating income was up by 11 % to €128 million, while operating costs rose by just 2%, despite the bank hiring more staff.

He noted that there are still issues with the ECB charging banks for deposits rather than paying interest, but noted that the bank still managed to make a profit.

He noted that loans to personal clients as well as corporate entities stood at €4.5 bn, while the amount of deposits held with the bank stood at €10bn.

The percentage of deposits loaned out now is much less than it was in 2012, now standing at 45.1%.



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