Multiple sources have confirmed that a portfolio of loans sold by the Bank of Valletta for €26 million to a company involving its own former chairman has an estimated value of over €100 million.
This week, The Shift revealed that BOV’s loan portfolio buyer was investments company 3514 Capital Partners, a company set up as recently as July 2022 and involving the bank’s former chairman, Deo Scerri.
While the bank announced the sale, it did not state its value or the company acquiring it.
Scerri was chairman of BOV between 2016 and 2020 after being given the role by disgraced former prime minister Joseph Muscat. Before that, Scerri was the auditor of the Labour Party in government.
In response to questions by The Shift, Scerri denied any influence in the decision taken by the company to acquire the loans for a quarter of the estimated value.
Scerri sits on 3514 Capital’s investment team. The loan portfolio, which comprises some 700 personal and business loans across 245 borrowers, was sold for €26 million in December.
Internal sources said the portfolio’s total value was estimated at over €100 million, while the bank has refused to disclose it, citing commercial sensitivity.
Sources claimed that more than 90% of the loans have been in default for five years or longer and were dished out by various BOV administrations on “dubious” terms. The bank is not disclosing the names of the defaulters.
The Shift has put the value cited by sources to the bank, allowing it to contest sources’ claims. It refused to confirm or deny the value, saying it was difficult to quantify future returns.
Sources claimed the transaction would mean the purchasing company could make millions of euro in profit in BOV’s stead. A sizeable portion of the unfulfilled loans are backed with assets the bank funded.
Twenty-five per cent of the bank’s equity is held by the Government of Malta, 10.2% by UniCredit S.p.A. and the remaining 64.8% is held in shares by members of the public.
While declining to disclose the book value of the defaulted loans due to “commercial sensitivity”, BOV claimed the heavy discount at which they were sold is standard banking practice.
The bank claimed the difficulty in recovering the loans meant that it was advantageous for the bank to sell them off for a lump sum. This argument is being contested, and the lack of transparency by the bank is fuelling doubts about commercial interests in the deal.
The bank said, “It is expected that for non-performing loans with long vintages, recovery materialises through the liquidation of the collateral following a judicial process, bound to take several years.”
It claimed the €26 million consideration meant that “The bank shall have recovered the minimum between the (i) legal amount due by the customers and (ii) projected future value of the collateral adjusted to reflect risk factors and liquidation costs.”
The company that acquired the loans, 3514 Capital, is a partnership directed by Jean Carl Farrugia, founding partner at DF Advocates, and Christopher Vella, CEO at business consultancy Polymath & Boffin.
Vella is the sole director of investment advisory Polymath & Boffin, set up in 2011, whose offices in Floriana also serve as those for 3514 Capital.
Farrugia and Kevin Deguara are the founding partners of DF Advocates – a firm that made a name for itself for being involved in several controversial deals negotiated by the Labour Party in government, including the rezoning of Smart City for private residences and the hospitals scandal.
Farrugia and Deguara were direct beneficiaries of rushed legal changes allowing residential developments at Smart City in 2018.
In 2021, Deguara’s house and office were searched by police investigating the ‘fraudulent’ Vitals-Steward hospitals deal.
Deguara is also involved in a string of other businesses and sits on the boards of various companies, including D Shopping and Dizz Finance – the financial arm of Diane and Karl Izzo’s Dizz Group – and Sadeen Education Investments Ltd – the company behind the beleaguered American University of Malta.
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“…it was difficult to quantify future returns”. Could it turn out that they will make a loss, after all?
If Politically Exposed Persons, individual or corporate, are on the list, it is appropriate to highlight that, a money laundering vehicle is repaying part of the loan, enabling the company buying the portfolio to make a profit and, having the balance ‘forgiven’.
This measure would ultimately enable the person owning the loan in retaining funds that would have been borrowed from the bank. Those funds would qualify as ‘laundered funds’ made clean through the
scheme and represented by the immovable property purchased with the bank loan which would be sold and produce ‘clean’ funds.
So this deal passed the scrutiny of the due diligence that is required to be carried out by the MLRO of the Bank and the Compliance department? What was the input of the Mfsa and ECB? Hopefully an investigation is carried out, made public when it commences and also when it is finalized. Otherwise this could be proof of a haphazard approach to banking whereby the common people bear the mistakes or the thefts of the big gangsters since normal customers would have their accounts closed if they do not do their review
Probably the E100m sources are talking about is the gross book value of the portfolio, not the expected or realisable value after the acquirer works out the loans – this will likely be much lower and will take many years. Given the involvement of the ex chairman – which is hardly a coincidence – BOV should have disclosed who bought the Portfolio. This is normal practise in NPL sales. The most important question to ask is whether this sale was as a result of a competitive bidding process or not?
Is BoV strapped for Cash and/or illiquid?
Does BoV have underpaid lawyers in its Legal Department?
Can the Board of Directors actually defend such sell off, if they are sued for gross negligence at best, in their personal capacities?
Have the Government appointed Chairperson and Director consulted anyone connected with the Labour Party before such an exceptional decision was taken?
How come 3514 Capital SCC knew about this item when no tender or public call was issued. Is it true that this financial vehicle was set up in mid 2023. A simple check with the MBR will give you the confirmation. So this is a simple example of collusion or as is stated in trading – insider dealing. This is a criminal act so please FIAU regain your credibility by investigating. I pity the shareholders including myself since this is another blow to the value or asset size of bank of Valletta. The bank is obliged to be transparent and thus state the value of the customer assets that were doing good for these loans.