Former FBM employees, are you here?

This week, the Supreme Cour t Appeal made a landmark ruling that economic and finance experts say could heavily shake the foundations of the Reserve Bank of Malawi (RBM). The apex court ruled that the central bank acted wrongly when it closed Finance Bank of Malawi (FBM) in 2005 and ordered RBM to compensate the institution for profits it lost following the closure. In i t s r u l i ng , t h e Supreme Cour t said that although RBM had concerns about the bank’s operations, at the time, closing it entirely was excessive as there were other regulatory measures that could have been explored.

Legal and financial e x p e r t s s a y t h e compensation could run into billions if not trillions of kwacha. Some roughly or roundly put the bounty at K5 trillion. But they fear that RBM may not have this amount of money.

Could the entity be liquidated? The ruling obligates RBM to pay the defunct bank this dizzying amount of money in compensation to cover profits FBM would have earned had it not been closed. The central bank has not disclosed its next course of action—that is—whether it will cough the money, or fight the ruling.

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But this ruling is from the country’s apex court. Hence, if the RBM is to battle the ruling it will have to seek such remedies outside the country ’s courts’ jurisdiction. But my interest is not if RBM will fight the ruling rather it is if the central bank will rain this amount of money on FBM.

Par t i cular ly, I am interested in how such profits are calculated? During the 20 years or so when the bank has not been operational, who enabled it to make these profits and, therefore, who should benefit from them. My i n teres t i s on the moral aspec t o f the transactions rather than the legal ones.

It is not rocket science. In my layman’s thinking, whatever amount o f profits the bank would have made if it were not closed, this was going to be made possible by the shareholders, the governance structures and the bank’s employees. All these therefore deserve a cut from the proceeds.

Not just the shareholders. But maybe even before we go far, we need to d e f i n e p ro f it. W hat constitutes profit?

Profit is the financial gain when a business’s total revenue exceeds its total expenses, costs and taxes. Br i e f l y, t h e re are three types of profit. Gross Profit—which is revenue minus cost of goods sold.

Operating Profits—which is Gross Profit minus operating expenses and Net Profit— which is bottom line total revenue minus all expenses including taxes and interest. So which profit will RBM pay? Assuming it is Net Profit, who will pay the former employees of the bank who logically must also be part of this deal because the bank could only have made profits with their enablement?

Again mora l ly and logically, if FBM is to be paid anything, then its employees at the time the heavy hammer fell on the bank also ought to be paid (salaries) for the work they are deemed to have been doing which enabled the bank to make profits. F B M ’ s f o r m e r employees have every reason to feel shortchanged and seek remedies if they are left out of this deal. In the same vein, if FBM will be paid Net Profit, who will pay government the taxes due to it from the profits FBM is assumed to have been making?

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