Cracks appear in the government’s piggy bank

Who thought extending ‘‘interest-free’ property loans to people who don’t qualify for loans was a good idea?

Elements of the 2020 Budget reminded me of the last election. I thought I’d fallen into an “Only in Malta” episode of the Twilight Zone as I watched members of parliament hand out hampers of cheap food: bottles of wine labelled with the face of “Il-Ministru Konrad Mizzi”; bags of bread with printed inserts for Silvio Schembri; a sack of oranges with the face and contact details of Chris Fearne.

It didn’t matter whether all this frantic gift giving was legal. All that mattered to each voter was what was promised to him or her.

What the government is doing by offering €17,500 ‘interest-free’ loans on properties valued at up to €175,000 is providing banks with a guarantee scheme to cover the initial 10% deposit on the property plus interest.

In other words, they’re opening the market in Malta to what are essentially sub-prime mortgages.

We saw what happened in the US when lenders took on higher risks by offering such subprime mortgages to borrowers with poor credit. Demand drove the housing bubble to all-time highs, and the bubble burst the following summer.

Making banks act as the government’s cash cow to keep the current construction boom going is like stomping on the accelerator rather than easing on the brakes. The bubble will still burst, of course. The banks will just be hit even harder when it happens — putting the savings of normal working people at risk.

I can’t see any sensible institution taking this on voluntarily, given the lessons of the American sub-prime mortgage crisis. Does that mean BOV will again be left picking up the tab?

Signs of an impeding crisis are becoming more obvious, thanks to high level corruption scandals that just won’t go away.

Deutsche Bank cut its correspondent banking ties with BOV in 2017, and announced that it is severing such ties with all banks in Malta by the end of this year.

HSBC is closing eight branches in Malta, in what they’re saying is part of a strategic plan to “focus on digital banking services” and “modernize its branch network”. But when asked in an interview with the Times of Malta if the Maltese banking sector is in trouble, HSBC CEO Andrew Beane said, “Today, HSBC reports about 85% of all suspicious transactions in the domestic banking sector”.

Suspicious transaction reports are compiled and regulated by banks and financial institutions. They flag transactions which could be related to money laundering. Why are 85 per cent of such reports coming from one bank? If this is even remotely accurate, it’s alarming.

Most troubling of all has been the flurry of activity at Malta’s largest bank.

Bank of Valletta is losing its sole remaining US dollar correspondent bank, ING, in December. The bank is also ending relationships with ‘high risk’ clients like gaming companies, and desperately trying to complete years worth of legally required due diligence documentation that they should have been collecting all along, with customers being told to provide legally notarized personal identification and documentation on wire transfers dating back years.

But Bank of Valletta isn’t being subjected to scrutiny because of their normal personal and business clients. BOV is suffering from being this government’s cash cow.

The government is BOV’s largest shareholder, and appoints its chairman. That same government secretly authorized an €88 million bank guarantee for a private loan to Electrogas through BOV in 2015. They extended another €360 million State loan guarantee to Electrogas right before the last election. The Electrogas deal was described as “sinister” and a “highly irregular procedure” by Council of Europe Special Rapporteur Pieter Omtzigt, and was the last major story Daphne Caruana Galizia was working on when she was assassinated.

The government also guaranteed €81 million in bank loans to Crane Currency in 2016, part of its plan to lure the printing company to Malta — a move facilitated by Chief of Staff Keith Schembri, whose company Kasco Trading is an agent for printing equipment and paper.

You might also recall Daphne Caruana Galizia wrote in June 2017 that Pilatus “holds accounts with Bank of Valletta which it uses to process transactions through BOV’s own correspondent banks.” 

One could be forgiven for thinking that BOV is Keith Schembri’s piggy bank.

But BOV and Pilatus weren’t the only local banks to come under scrutiny. We also saw Satabank’s accounts frozen last October for “billions of euros in suspicious transactions”.

Today Malta’s banking sector is under the microscope like never before. It turns out that failing Moneyval does have consequences.

Sure, the Finance Minister announced a new €10,000 cap on cash transactions as part of Budget 2020, as well as the setting up of a Financial Organised Crimes Agency with the help of UK and US experts. But the foreign financial press reported these developments differently. They suggested this cap on cash came as a result of direct pressure on Malta by the European Union.

It all strikes me as too little, too late. We’ve seen the pattern so many times before. They make a few changes on paper to look like they’re cooperating while ignoring the giant MizziSchembri-sized elephant in the middle of the room.

Warnings are voiced. The government assures us that nothing is happening, and trots out Fast Eddie “Pretend-It-All-Away” Scicluna with yet another ratings agency report paid for by your tax dollars to reassure devoted Muscatians that, yes, il-Kink is putting money in your pocket.

The same people close to the inner circle keep cashing in. They won’t stop stuffing their pockets until there’s nothing left to take, and they’ll keep getting away with it as long as enough people think ‘there’s something in it for me’.

Sandro Chetcuti and the Concrete Kings were certainly happy with this new budget. But I don’t imagine BOV is pleased with the idea of extending sub-prime mortgages to people who wouldn’t qualify for normal bank loans, simply to keep that construction bubble going just a little bit longer.

Make hay while the sun shines! Just be sure to store that hay in foreign barns.