The Unthinkable Just Happened in Spain

Six central bankers and a financial regulator get dragged to court

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

Untouchable. Inviolable. Immunity. Impunity. These are the sort of words and expressions that are often associated with senior central bankers, who are, by law, able to operate more or less above the law of the jurisdictions in which they operate.

Rarely heard in association with senior central bankers are words or expressions like “accused”, “charged” or “under investigation.” But in Spain this week a court broke with that tradition, in emphatic style.

As part of the epic, multi-year criminal investigation into the doomed IPO of Spain’s frankenbank Bankia – which had been assembled from the festering corpses of seven already defunct saving banks – Spain’s national court called to testify six current and former directors of the Bank of Spain, including its former governor, Miguel Ángel Fernández Ordóñez, and its former deputy governor (and current head of the Bank of International Settlements’ Financial Stability Institute), Fernando Restoy. It also summoned for questioning Julio Segura, the former president of Spain’s financial markets regulator, the CNMV (the Spanish equivalent of the SEC in the US).

The six central bankers and one financial regulator stand accused of authorizing the public launch of Bankia in 2011 despite repeated warnings from the Bank of Spain’s own team of inspectors that the banking group was “unviable.”

Though they have so far only been called to testify, the evidence against the seven former public “servants” looks pretty conclusive. Testifying against them are two of Banco de España’s own inspectors who have spent the last two years investigating Bankia’s collapse on behalf of the trial’s presiding judge, Fernando Andreu. There are also four emails from the Bank of Spain’s inspector in charge of overseeing Bankia’s IPO, José Antonio Casaus, to the assistant director general of supervision at the Bank of Spain, Pedro Comín, that very clearly express concerns about the bank’s “serious and growing” profitability, liquidity, and solvency issues.

Here are four brief excerpts:

  • [April 8, 2011] “Bankia is unviable, both economically and financially. In the end, the FROB [Spain’s state-owned Fund for Orderly Bank Restructuring] will have to convert its debt into shares for the BFA [Spain’s state-owned banking group] and refund holders of Bankia’s subordinate bonds and “preferentes” shares. […] Find a buyer for the group.”
  • [April 14,2011] “This is not working, it’s getting worse. […] Bankia’s capacity to generate resources is deteriorating.”
  • [May 10, 2011, uppercase used by Causus for emphasis] “The endogenous solution put forward by Bankia — a public listing with a double banking structure without the necessary structural changes — WILL NOT WORK AND WILL HAVE A DEVASTATING IMPACT ON TAXPAYERS.”
  • [May 16, 2011, 2 months before the IPO] “The (bank’s) board is highly politicized and unprofessional. It still has the same directors that led the former entities to need public assistance: [they are] discredited in the eyes of the markets.”

As the court’s edict reads, the contents of the emails unequivocally demonstrate that the Bank of Spain’s management was perfectly aware of the “inviability of the group” as well as “the fabricated financial results it had presented.” Yet, together with the CNMV, it lent its blessing to those results, knowing full well they bore no relation to reality .

Featured in the IPO prospectus, those results were crucial in luring 360,000 credulous investors into buying shares in the soon-to-be-bankrupt bank, not to mention the 238,000 people who bought “preferentes” shares or other forms of high-risk subordinate debt instruments being peddled by Bankia’s sales teams as “perfectly safe investments.” Most have since been refunded by Spanish taxpayers.

The IPO prospectus was also signed off on by Bankia’s auditor, Deloitte, whose Spanish representatives are also warming the defendants’ bench. Deloitte was not just the bank’s auditor, it was also the consultant responsible for formulating its accounts. As El Mundo put it, first Deloitte built Bankia’s balances, then it audited them, in complete contravention of the basic concept of auditor independence [read: Deloitte About to Pay for its Spanish Sins?].

Given this deeply compromising, not to say illegal, set-up, it’s hardly any surprise that Deloitte was happy to confirm in Bankia’s IPO prospectus that the newly born frankenbank was in sound financial health, having made a handsome profit of €300 million just before its public launch. It was a blatant lie: in reality Bankia was bleeding losses from every orifice.

Now, just about everybody who played a role in this momentous deception, with the exception of the government itself, is standing trial. That includes 65 former members of Bankia’s management team including its former President and ex-chief of the IMF, Rodrigo Rato, who faces charges of money laundering, tax fraud, and embezzlement.

In his testimony to the court almost exactly two years ago, Rato argued (quite rightly) that the blame for Bankia’s collapse should be much more evenly spread out. Bankia’s public launch “was not a whimsical decision” taken by its chief executives, he said, but was the inevitable result of regulatory changes at the beginning of 2011. According to Rato, the CNMV even played an active role in drawing up the bank’s lie-infested IPO brochure.

Now, two years later, some of Spain’s most senior central bankers and financial regulators find themselves in the rare position of having to explain and defend the actions and decisions they took that helped pave the way to the biggest bank bailout in Spanish history. It will be one of the first times that senior members of the global central banking complex have had to face trial for the consequences of their actions.

That’s not to say that justice will prevail. Spain’s legal system is notoriously slow, especially when it’s convenient, and heavily politicized. There’s also the possibility that the ECB may intervene as it did in Slovenia’s investigation of its central bank’s alleged misuse of bailout funds. The last Spanish judge that dared to take on the financial elite, Elpidio Silva, sent Caja Madrid’s CEO Miguel Blesa to jail — not once, but twice – and was barred from the bench for 17 years. As such, the presiding judge of the current case, Fernando Andreu, would do well to tread carefully; he risks stepping on some very important toesBy Don Quijones.

Now a hot new bail-in-able debt got cooked up by financial engineers in France. And it’s a big hit. Read…  Biggest EU Banks Embark on the Mother of All Debt Binges

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  17 comments for “The Unthinkable Just Happened in Spain

  1. Martin says:

    Lets wait and see the outcome usually the judges are replaced before final decisions are completed It would be over seen by ECB anyway
    But that’s another day’s work The banking system world wide is a mess due to political manipulation as usually the lay man pays the price I guess is designed this way to keep people in the net up to their eyes in debt

    • hendrik says:

      Until the layman has no more money. Or until the layman invests his savings in non-banked assets. One can only take “stuff” from anybody who still has “stuff”. So, get OUT of the banking system asap . We, the laymen, do not have to demonstrate in the streets risking a fractured skull by the “police forces”, we only have to withdraw ALL our savings from the corrupted banking system ans stop consuming non-essentials for a few months. The whole house-of-cards ( aka. as the banking system ) will collapse in WEEKS!

      • SaveUs says:

        You are correct Hendrik. It is up to us the 99% to make the change back to trust, honesty, respect and the rule of law for all of us. Without us (the worker bees) the economic elite have nothing. Everything is produced off of our backs one way of another.

        We not only have to get out of the banking system and perhaps put our money in a credit union, we need to boycott multi-national corporations that are shafting us. The major problem we have is organizing. We cannot depend on our elected officials.

  2. d says:

    Even if the judge is finally replaced.

    To many facts about the wrongdoing in the criminal launch of Bankia will see daylight for this issue to die.

    Pedomos will make sure of it, if it wishes to play any relevant part in the future in Spain. This is almost acampaign gift to them.

  3. RepubAnon says:

    I get the impression that the taxpayers won’t stand for another bail-out. A charismatic politician would rise up from somewhere and lead a voters revolt. The Greeks backed off of theirs – but that was before the rest of the EU began showing signs of economic collapse. Bankers would make fine scapegoats, and an austerity-triggered depression in multiple countries simultaneously would make it impossible for the central bankers to crush them all.

    • d says:

      “The Greeks backed off of theirs – but that was before the rest of the EU began showing signs of economic collapse”

      Not so .

      The greek Administration was forced by its people to stay in the Eur.

      As the people understood, a return to Drachma, was a return to continuous Socialist State Devaluation and Debasement of their currency.

      Something the Eur has saved them from.

      The citicens of greece have enough money to stabilise the banks and eliminate most foreign national debt. This money is not in greek bank’s or within reach of the greek state. For obvious reason’s.

  4. Nik says:

    Aloha…Glad to see the ‘Populist Torches and Pitch-forks’ are Alive and well on the Iberian Peninsula too…! lolol

  5. michael says:

    This is a good trend. I prefer Rope is inexpensive and can be reused.

  6. Smitty says:

    I smell ABENGOA.

  7. Brian says:

    Fractional reserve banking is a fraud on taxpayers in the the end when bail-outs are required to maintain too big to fail thinking.

  8. NotSoSure says:

    And they threw the CEO of Samsung to jail and forced the President of South Korea to resign.

    Whenever I see news like this, I just want to puke at Western hypocrisy.

    Oh come Monday, expect Spanish spread to narrow, heck Spain might be more credit worthy than the US then. LOL.

  9. Jacko Reed says:

    Kings brother in law gets 6 years.
    Infanta Cristina acquitted in Nóos case, king’s brother-in-law given six years

  10. Hg says:

    Mr Quijones informed us recently of another such case when the presiding judge found himself imprisoned for presuming to have authority over the Boys Club.

  11. Chris Wagner says:

    How come the MSM isn’t publishing this juicy scandal? Or looks at the top 4 Greek banks and how a scam lets them add billions of € as “assets” to their balance sheets? (Claims against their government over national bonds. Yeah, right – Athens will be good for the money)

    There are people who k n o w i n g l y harm the taxpayers. Not unlike GS bankers joking about the bad ABS deals they have been peddling.

    Mme Legarde: guilty – but there won’t be a punishment? Some such outcome is likely. With the MSM ignoring the issue as much as possible.

    • d says:

      Do not bite the had that feed’s.

      s the message from the Powers to the MSM from The Eu.

      Its 2017 not 2008, Bankers are no longer the acceptable soft target of the day. Especially in the Corrupt club med states.

      The Asian states of Thailand and the Philippines, are regularly labeled, as the most corrupt in the world.

      Both look very innocent, when compared to French and club-med banking, and state administrations.

      But the Mostly European’s decide who is the Most Corrupt. Hence china is never at the top of the Global Corruption list where it belongs, as it is a hand that feed’s, the Eu.

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