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.
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.