11 May 2005


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Devaluation jabber benefits banks and stockbrokers

Matthew Vella

Much talk over devaluation and depreciation of the Maltese lira is liable to have sent many investors and the general public rushing to convert Maltese lira funds into euro-denominated assets, as the panic caused over devaluing the lira prompted an outflow in currency.
But the biggest earners in the entire saga are the stockbrokers and banks which carried out the conversions of their clients’ portfolios into euros and enjoyed the Central Bank intervention to push the interest rates up.
The parliamentary palaver prompted by Alfred Sant’s calls for a gradual depreciation of the Maltese lira, was undoubtedly a contributing factor to the outflow in currency, although not without its endorsers, such as Toly Products’ CEO Andy Gatesy.
According to Lino Spiteri, writing in The Times last Thursday, some Lm60 million “whooshed into foreign currencies” when Sant decided to suggest that the lira was overvalued by 10 per cent, and that it should be restored to a lower value over a three-year period. As Spiteri commented, the increase in consumption of imports and conversions into euro-denominated asset funds took their toll by March 2005, prompting the pushing up of the interest rate structure, despite governmental reassurance that devaluation was not on the cards.
Jesmond Mizzi, the chairman of Jesmond Mizzi Financial Services, says the talk on devaluation in the last months triggered more people into asking what they should do with their funds.
The biggest earners in the entire saga are the people who earn their living by moving about money. Mizzi doubts that stockbrokers were sending mailshots to clients asking them whether they wanted to convert their money into euros, as talk on devaluation continued. He was surely faced with many queries from what must have been a gaggle of panicked investors, but he doesn’t think stockbrokers were actually encouraging the conversion into euros.
“I have been in this business for ten years now and this talk about devaluation has been going on for as long as I can remember. In the last few months there was more talk which could have triggered more people in asking about what they should do with their money. We had no idea that Malta was about to join the ERM II, although there had been a build-up in the discussion. I believe that people should diversify their investments, but it was clients who came up to us to convert their funds into euros, and not us who encouraged it.”
When asked about whether the months of devaluation panic had been fruitful for stockbrokers, Mizzi says the mainstay of the business does not comprise of conversions – changing the lira into euros – which he believes was the net effect of the outflow of reserves.
“I think most people basically converted their lira accounts into euros – I cannot say whether our business soared in these months, conversions do not form the mainstay of our business.”
The other earners are the banks, who in the words of economist Karmenu Farrugia, will continue to ‘steal’ more cash out of the public when the Central Bank increased the interest rates to stem the capital outflow. The result was costlier debt financing for investors and mortgage holders.
Added to that is Lino Spiteri’s assertion that banks will continue to apply a variation of three to four per cent on exchange transactions, and that “buying or selling euros will continue to cost those who exchange Malta liri between one-and-a-half and two per cent. Given that the banks will not be carrying any exchange risk by being ‘overbought’ or ‘oversold’ that is a pure transaction cost.”

matthew@newsworksltd.com



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