Next Banking Scandal Explodes in Spain

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Wealth redistribution in progress.

By Don Quijones, Spain & Mexico, editor at WOLF STREET.

The last five years have been a bumper period for banking scams and scandals in crisis-ridden Spain. From Bankia’s doomed IPO in 2012 to the “misselling” of complex preferentes shares to “unsophisticated” retail bank customers, including children and Alzheimers sufferers, all of the scandals have had one thing in common: the banks have consistently and ruthlessly sacrificed the welfare and wealth of customers, investors, and taxpayers on the altar of short-term survival.

Some commentators claim that the problem of banking instability in Spain has been put to rest in recent times, thanks chiefly to a robust, debt-fueled recovery, a tepid resurgence of the real estate sector and the transfer of the most toxic assets from banks’ balance sheets to the festering balance sheets of the nation’s bad bank, Sareb. They could not be more wrong.

Despite the untold billions of euros of public funds lavished on “cleaning up” their balance sheets and the roughly €240 billion of provisions booked against bad debt since December 2007, the banks are just as weak and disaster-prone as they were four years ago.

And now, it seems a new scandal is in the works. Last month Spain’s sixth largest financial institution, Banco Popular, announced that it was urgently seeking to raise €2.5 billion in capital in a desperate bid to shore up its finances. The news triggered a sell-off that wiped out 33% of the bank’s market capitalization in just two days, before investor nerves were steadied somewhat by revelations that the bank had found 10 global mega banks as underwriters for its €2.5 billion rights issue, including Goldman Sachs, Morgan Stanley, Santander, Deutsche Bank and HSBC.

But in recent days the stock has once again begun to crumble following allegations that Popular is also doing some creative selling of its own. The Spanish investment group Blackbird claims that the bank is offering customers dirt-cheap loans or refinancing deals, at an interest rate of just 2.5%, as long as they use some of the funds to purchase the bank’s new shares.

“Popular is offering loans to its customers on the condition that they subscribe to the rights issue… and then deposit the €1.25 per share in their bank accounts,” asserts Marc Ribes, co-founder of BlackBird.

If Blackbird’s allegations are well-founded — and so far there’s been no official denial — Popular is in the process of taking the dark art of banking misdeeds to a whole new level. In the preferentes scandal, Spanish banks effectively plundered billions of euros of their customers’ savings to keep their balance sheets in tact, at least for a little while longer. That was bad enough. But now it seems that the already heavily debt-laden, loss-leading Popular is creating new debt for broke customers so that they can participate in the bank’s rights issue.

Such behavior is not just unethical; it’s illegal. Banks cannot lend customers money to buy the banks’ own shares. At least not in Spain.

The allegations against Popular have reached such a level that Elvira Rodríguez, president of Spain’s National Securities Market Commission (CNMV), was yesterday asked to comment on them. She declared that the CNMV “will be monitoring and asking for information from” Banco Popular about its forthcoming capital expansion. This should, in an ideal world, be a source of relief to investors. But this is not an ideal world and there is no source of relief — at least not from financial regulators, whose role is to guard the foxes as they eat the hens while telling the hens not to worry about the foxes.

In the last five years Spanish banks have been able to bend or break just about every rule in the book with not so much as a slap on the wrist from Spain’s two biggest financial regulators, the CNMV and Banco de España, both of whom have been accused of a raft of oversight failures in Bankia’s IPO.

The chances of the same two regulators suddenly taking an interest in the misdeeds of one of Spain’s biggest financial institutions are paper-thin. As for Spain’s caretaker government, it’s not hard to fathom where its loyalties lie, particularly in light of the fact that the governing People’s Party just received a €1.2 million loan from Banco Popular so that it could post bail for three former treasurers accused of operating a multi-decade slush fund to channel corporate kickbacks to senior party officials.

Meanwhile, Spain’s fourth biggest party, the center-right Cuidadanos financed its last election campaign with a €4 million loan from (yes, you guessed it…) Banco Popular.

With 10 of the world’s biggest and most deviant banks preparing the ground for Popular’s capital expansion while Spain’s regulators and government look the other way, it’s hard to shake the feeling that a trap is being laid. If the last five years are any indication, the chosen prey will be (in order of appearance) gullible customers, retail shareholders, and Spain’s unconsulted taxpayers. Once again, the wealth of the country will be redistributed from middle-class taxpayers, investors, savers, and pensioners to the executives and creditors of financial institutions.

As a former Barcelona-based banker told me a couple of days ago, “the banking sector — once the foundation of the economic system — is a disgrace; it has lost all sense of purpose, apart from sucking dry what little marrow remains of the productive economy.” By Don Quijones, Raging Bull-Shit

Things have gotten so bad in the Eurozone that even the staunchest eurocrats are beginning to express doubts, even European Parliament Chief Martin Schulz who’d warned over a possible “implosion of the EU.” But now, the eurocrats are not just falling into despondency and despair, they’re beginning to turn on each other. Read… “The Specter of a Break-up Is Haunting Europe”

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  12 comments for “Next Banking Scandal Explodes in Spain

  1. as
    June 8, 2016 at 10:16 am

    It’s done.
    It’s a confidence game
    And it’s done

    • Simon Wiltshire
      June 8, 2016 at 10:44 am

      I do agree – but it is only done for those who see the game for what it is. The vast majority are completely unaware.

    June 8, 2016 at 10:45 am

    NONE of this would/could be possible if GOLD was money and money was GOLD.

    (Sure, you may have other problems, but not this level of fraud, etc.)

    • NotSoSure
      June 8, 2016 at 3:43 pm

      LOL at “A, B or C is the solution”.

      I can already hear the conclusion of some robot in the future. “Every suffering comes from human desire, therefore to eliminate the source of all suffering, let’s eliminate all human beings.”

      Yep, totally. No human beings mean no Euro, no greed, environment destruction, etc. Problem solved.

        June 8, 2016 at 4:48 pm

        The guy who started Buddhism said: “Desire is the source of all pain”.

        That is exactly what you just said, but I don’t think you understand what you said.

    • Miguel
      June 8, 2016 at 9:35 pm

      Gold has always been money but the modern monetary system doesn’t see it that way. However, Bitgold (Goldmoney) is changing all that.

  3. Christoph Weise
    June 8, 2016 at 11:10 am

    Banco Popular should be closed by now. Unfortunately due the criminal activities of Mr. Draghi the bank continues to operate and to burn other peoples money.

  4. Chip Javert
    June 8, 2016 at 11:19 am

    OK – here’s the Spanish (and EU) socialist goals & solution:

    1) We must protect the children (so we can steal from them when they grow up)
    2) We cannot have capitalist greed (socialist greed is ok)
    3) All of us bank (and ECB) managers need to keep our jobs

    1) THE ECB will print money, buy corporate debt, put it on the ECB balance sheet – no selling to dirty & stupid customers required!
    2) And (best part of all…) WE GET TO KEEP OUR JOBS!

  5. michael
    June 8, 2016 at 12:14 pm

    I would suggest to you the Euro should be closed as well.

  6. Roger
    June 8, 2016 at 1:16 pm

    And of course unconsulted Spanish taxpayers as me have to read international press to know about that, because our beloved free-press is never going to tell us about this stuff. Thank you very much Don Quijones.

  7. d
    June 8, 2016 at 6:38 pm

    Spain know’s the Mafiosi in charge of the ECB will do nothing and further he will prevent the germans from doing anything about it.

    Which is why Germany will not sign onto an Eur deposit guarantee scheme.

    Madrid and Rome the two old European centers of corruption and evil, at it again.

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