Regulators Missing in Action

For several hours, speculation ran rampant, as neither bank stepped forward to confirm or deny the rumours – something which, as entities publicly listed on the Malta Stock Exchange, they were expected to do in terms of the MFSA’s Capital Markets Rules, which require an announcement to be made where a public company is “the subject of rumour and speculation”.

The rules aim to ensure shareholders are kept informed and prevent creating market instability and speculation, like the roughly 18% increase in APS’ share price immediately after the news broke. Instead, both banks issued brief and late, telegraphic press releases that avoided confirming or dismissing the rumours, leaving many questions unanswered and fuelling the market’s anxiety.

The law does allow companies to seek an exemption from the requirement to publish announcements in some cases where disclosure may prejudice the company’s legitimate interests. But not having an obligation to do something is not the same as not having a responsibility to do it, especially in the interest of maintaining market stability.

The same can be said for Finance Minister Clyde Caruana who preferred not to comment on the matter. No reassurance that the government was following the developments closely, or that it would see to it that any transition be handled in a way that ensures economic stability.

The situation became even more tangled when it emerged that HSBC Malta’s parent company had allegedly been in advanced talks with APS behind HSBC Malta’s back. What should have been a clean, transparent process quickly devolved into a messy affair, raising questions about oversight, corporate governance, and, most worryingly, the competence of Malta’s financial regulators.

The Malta Financial Services Authority (MFSA), tasked with regulating and maintaining transparency and stability on the market, have been conspicuously absent. And it’s not like this came out of nowhere. The warning signs were there – HSBC has long been an awkward fit for Malta. The bank’s international structure, compliance-heavy processes, and global challenges have been compounded by Malta’s small market size and its increasingly complicated regulatory environment. HSBC Malta has been shrinking for years, closing branches, reducing staff, and cutting back on services. This latest review feels like the natural conclusion to a long decline.

But now, with APS potentially stepping into the ring, the situation has become even more complex. APS is a well-established local player, but it has neither the size nor the experience to manage a bank as large as HSBC Malta.

HSBC Malta is more than twice the size of APS in terms of value, raising serious questions about how the latter intends to finance the acquisition. One possible scenario is that APS could partner with a foreign bank or financial institution to complete the deal. Another, more alarming, option is that the Maltese government could intervene, possibly through Bank of Valletta.

The Church’s Role and APS’ Dilemma

There’s another layer to the APS-HSBC saga that complicates matters further: APS is partly owned by the Maltese Church. Should the sale go through, the Church would find itself in the awkward position of suddenly inheriting HSBC’s commitments in Malta. APS, which has long prided itself on investing in environmental and green projects, would have to take on HSBC’s vast and diverse portfolio of investments and clients.

This raises significant questions about whether the Church is prepared to manage such a massive transformation of APS’s scope and mission. Inheriting HSBC’s client base would thrust APS—and by extension, the Church—into uncharted territory.

Can APS Handle It?

The potential impact on employees is another ticking time bomb. The Malta Union of Banking Employees (MUBE) has yet to make a formal comment, but redundancies seem inevitable. Mergers and acquisitions in the banking sector almost always lead to job losses, and with APS likely to restructure HSBC Malta’s operations, staff cuts could be substantial.

Consumers, too, face a stark reality. Should the deal go through, Malta will lose one of its two systemic banks. This would leave customers with even fewer choices in an already concentrated market. With competition dwindling, the cost of banking services could rise, and the quality of those services could deteriorate. The Malta Competition and Consumer Affairs Authority (MCCAA) will need to assess the impact this would have on consumer welfare and fair competition, though the damage may already be done.

And then there’s the European Central Bank which may be opposed to greenlighting a deal which would likely prejudice the country’s financial stability.

A more immediate and perhaps even more alarming concern is whether APS has the operational capacity to handle the integration of such a large institution. APS is not known for managing banks on this scale. The risk of stretching its resources too thin is high, and the worst-case scenario could see both banks – effectively the majority of Malta’s banking sector – destabilized. With APS’s capital already under pressure, the prospect of such a deal could lead to a financial disaster. Surely it would benefit the country more to have HSBC replaced by another similar international banking institution?

A Blow to Malta’s International Banking Connections

Another major consideration is that HSBC’s exit would mean the loss of one of the few remaining links Malta has to global banking networks. Even with HSBC in place, Malta has struggled to maintain correspondent banking relationships, particularly with U.S. institutions. Without HSBC, critical sectors like gaming, aviation, and other international businesses will find it even harder to function. The knock-on effect could be an exodus of foreign companies from Malta, further destabilizing the economy.

This entire debacle has exposed a severe lack of oversight and regulation in Malta’s financial sector. The MFSA’s failure to act quickly and decisively during a time of market turmoil is deeply troubling. This isn’t just a question of transparency; it’s a question of public trust. Malta’s financial system is already viewed with skepticism by international regulators, and this episode will do little to repair that image.

In a country that has become all too accustomed to muddled responses from its institutions, the regulatory silence during this crisis is yet another symptom of a deeper, more systemic problem. Malta cannot afford to lose one of its biggest banks without a clear, transparent plan in place for what comes next. The longer the authorities wait to provide clarity, the more damage they do to the economy and the public’s faith in the system.

The stakes couldn’t be higher. Malta’s financial future may very well hinge on what happens next.