Mediterranean Bank, which is targeting international wealthy clients and mass affluent customers in Malta, is aiming to be a significant player not just in the island nation but in other parts of Europe, as well. WealthBriefing recently interviewed its CEO in Valletta.

Tough economic times can sometimes prove to be the best periods in which to launch a new business when clients are looking to make a fresh start.

That, at least, appears to be part of the reason why Mark Watson, chief executive of Malta-based Mediterranean Bank – which has been recently acquired by a private equity house – is feeling cheerful about the bank’s prospects. This bank, which is targeting international wealthy clients as well as mass affluent customers in Malta’s domestic economy, is aiming to be a significant player not just in the island nation but in other parts of Europe, as well.

“Our natural market is a cross-over between mass affluent and high net worth clients,” Mr Watson, a former veteran of Citigroup, told WealthBriefing when he was interviewed at his firm’s elegant dockside offices in Valletta, the Maltese capital city.

While some financial jurisdictions grab much of the media spotlight, not always for flattering reasons, Malta is quietly gaining momentum as a financial hub, host to dozens of banks, hundreds of hedge funds and a bustling centre for insurance, trusts and sectors such as ship finance. The country joined the European Union in 2004, making it an onshore centre and bringing it under the governance of the EU regulatory regime.

Malta’s EU membership, convenient time zone – just an hour in front of London – English language and UK-influenced legal code, make it an attractive wealth management centre in many respects. The country has had close historical connections with the UK since 19^th century – it used to be a UK colony until the early 1970s. The links endure: the island remains a popular tourist destination for people in the UK and the Maltese diaspora has helped keep the island’s profile in view (many Maltese emigrated to English-speaking countries such as the UK, Australia and Canada after WW2).

Ambitions

Mr Watson was previously co-head of Citigroup Global Credit Markets, and has been CEO of the bank since the firm was acquired late last summer by AnaCap Financial Partners, a London-based private equity firm that specialises in financial services. At the same time, Francis Vassallo, former governor of the Central Bank of Malta, has been made chairman.

Why did Mr Watson get involved with Mediterranean Bank? “I wanted to create a business and decided that to put together a bank was a good idea given the circumstances of the time. Starting a fresh organisation, when so many firms were looking at their operations, was a good idea,” he said.

“My business partners and I got introduced to Mediterranean Bank in Malta. The appeal of it was that it [the bank] was onshore, in Europe, with all the necessary banking licences in place.”

Having a buyer behind the deal in the form of AnaCap has been a great benefit, he said, since he and his colleagues can draw on the accumulated knowledge of that private equity firm.

The bank has two key client segments: a domestic, Maltese client base that mostly fits into the mass affluent bracket – with a slice of that having the potential to become high net worth clients – and an international client base seeking a foreign domicile for their money, he said. “This [international business] is to provide an international wealth management capability in a robust, onshore and tax-efficient jurisdiction.”

The mass affluent business focuses on deposit-taking banking services, term deposits and investments.

“The idea is that over the course of time, as we build up a loyal customer base, the top end of it – say 10 to 20 per cent – will get involved in a broader wealth management relationship,” he said.

On the mass affluent side, Mr Watson said the response has been highly positive: “Over the last two to three months, we have had many hundreds of clients and we have been encouraged by what is happening.”

As for the international wealth management business, Mr Watson said Malta could and was making a positive virtue out of its status as an onshore, not offshore, location within the EU.

“There is, given the current climate, interest in alternative jurisdictions,” he said.

The island’s has certain tax advantages, according to the FinanceMalta 2009 guide to the island. Tax is charged at progressive rates up to 35 per cent – a rate that compares favourably with the UK’s planned new top rate of 50 per cent on the highest earners, for instance. The country also operates an imputation system, which means that tax that is paid by a firm is imputed as a credit against the tax due by the shareholders when a dividend is paid out.

Investment products

Mediterranean Bank is also looking to develop a suite of investment products to be used by its own client base and external clients.

Growth has already been rapid. From a base of just five people last August, Mediterranean Bank now has 40 people, most of whom (34) are on the island.

The development of a private wealth management operation in Malta has been a very attractive proposition for ambitious financiers working in the island, he said. “We have given people roles here that are otherwise not readily available,” Mr Watson said.

The bank’s growth strategy is to expand by a mixture of organic growth and where appropriate, through acquisitions. It is looking at expanding in other parts of Europe. “We are looking at a number of situations,” he said. The bank is also planning to open a branch in London's Victoria district.

Mediterranean Bank, therefore, remains very much a firm to watch out for in the coming years.