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

The criminal investigation into Spain’s Too-Big-To-Fail monstrosity Bankia’s highly dubious 2011 IPO this week descended from the surreal into the downright macabre. In a rare departure from standard judicial practice, Judge Fernando Andreu had ordered Bankia, its parent company state-owned BFA, the bank’s former President, Rodrigo Rato, and three former directors to pay an €800 million civil liability bond for signing off on fraudulent financial statements in the run-up to the IPO – a criminal offense in Spain that is punishable with up to six years’ imprisonment.

However, given the stakes involved, especially in a make-or-break election year, Rajoy’s government is unlikely to allow another impudent judge to jeopardize everything they’ve worked for so hard – namely, their own enrichment and that of their closest friends and corporate sponsors. After all, the trial’s defendants include not only senior bankers but also former ministers of the governing People’s Party.

As I wrote ten days ago, it was just a matter of time before injustice was once again served. [read… Making Me Pay For My Crimes Would Send a “Message of Uncertainty to the Markets”: Bank President to Spanish Judge]. Unfortunately, it seems, I was right.

Bailing Out Banks and Bankers

First off the bat came an announcement late last week that in the event that the defendants would be held liable for the civil liability, Bankia’s publicly owned parent company BFA would pick up more than half of the €800 million tab. In other words, another taxpayer-funded bailout.

That, however, was just the beginning. Four days ago the real fun and games began with news that the country’s anti-corruption prosecution office, tirelessly working on behalf of the Spanish government, had launched an appeal against Andreu’s ruling.

This is not the first time that Spain’s public prosecutors have turned public defenders in a prominent case of white-collar crime. In 2013, the same “independent” public agency intervened in a case brought by Judge Elpidio Silva against Miguel Blesa, the former CEO of Bankia’s predecessor, Caja Madrid, who is accused of a litany of “financial irregularities.” After Judge Silva did the unthinkable by sending Blesa to jail without bail – not just once, but twice – the habitually slow wheels of the Spanish justice system began moving with determined speed.

First the anti-corruption prosecution office sprung Blesa from jail. Then it helped strip Judge Silva of his robe for 17 years and played a leading part in forcing him to pay the accused – Blesa and disgraced and imprisoned Spanish businessman Gerardo Díaz Ferrán – thousands of euros in compensation for the damage he had caused to their reputation. Now Silva stands accused by Blesa of leaking a cache of over 8,500 emails and SMS messages from his last three years at Caja Madrid to the Spanish online publication El Diario. Despite the “alleged” (you can never be too careful these days) incriminating nature of much of the correspondence, if the former judge is found guilty of the charges, he could go to prison.

Now another judge could face a similar fate. To justify once again interfering in a high-profile criminal case on behalf of the accused, Spain’s “anti-corruption” prosecution office argues that Andreu’s precautionary ruling could prove “counterproductive” for shareholders seeking compensation for the close to €3 billion of investments they lost during Bankia’s first – and what should arguably have been last – year of operations.

What sets apart the latest episode of interference on behalf of a defendant in a criminal case by Spain’s “anti-corruption” prosecution office is the argument it uses to justify its intervention. To begin with, it contends that Andreu’s precautionary ruling was a “premature measure” that could prove “counterproductive” for shareholders seeking redress for the close to €3 billion of investments they lost during Bankia’s first – and what should have been last – year of operations.

In an almost word-for-word replica of an argument already employed by Bankia’s former CEO, Rodrigo Rato, Spain’s public prosecutors (now turned defense lawyers) stated that not only was the measure unnecessary, it could end up damaging Bankia’s institutional reputation (Ha!), “sending an unsettling message of uncertainty to the markets” that could easily have a detrimental effect on the company’s share price.

“Chewing Gum” Accounting

However, the suicide banker-argument – i.e. don’t touch me, or the bank gets it, and if the bank gets it, so will everyone else – is only a stalling tactic; in order to bury Judge Andreu’s case against Bankia, the public prosecutors need to dynamite the basic assumption at the core of his argument – namely that Bankia’s collapse was a result of criminal wrongdoing.

According to Alejandro Luzón, the public prosecutor in the new case being brought against Judge Andreu, what lies at the root of Bankia’s explosive fall from grace between July 2011 and July 2012 was not fraudulent accounting but the challenging business environment in Spain, when financial asset prices were plummeting in value. And the discrepancy between the €309 million in profits in the bank’s initial financial reports published in mid-2011 when Rato was still CEO, and the roughly €3 billion losses in the bank’s reformulated reports for the same period, published a year later, when Bankia was under new management headed by former BBVA executive José Ignacio Goirigolzarri and on the verge of collapse? Luzón explains it away with the perfect stay-out-of-jail alibi:

In reality this divergence (between Rato’s figures and Goirigolzarri’s) shouldn’t generate too much surprise, since the determination of accounting value of most assets on bank balance sheets requires estimations that lead to a range of reasonable values and not an exact indisputable figure.

In other words, accounting in the banking sector is highly elastic. Or as Francisco González, the CEO of Spain’s second biggest bank, BBVA, put it during testimony in the Bankia Case, it is like “chewing gum.” The scary thing is that both Luzón and González are absolutely right. If the last six years of ongoing financial crisis have taught us anything, the difference between a profit and a loss on a bank balance sheet depends on who’s doing the counting and what “methods” they’re using.

However, the fact that Spain’s anti-corruption prosecution office is willing to use this most dangerous of truths in its defense of establishment figures like Rato and establishment institutions, including Bankia, the Bank of Spain, financial regulators and the government itself, all of whom played a front-line role in the bank’s collapse, is testament to the stakes involved in the legal case against Bankia. Unfortunately, the way things are going, the only person who is likely to pay a heavy price for Spain’s endemic culture of political and financial corruption will be another brave judge. By Don Quijones, Raging Bull-Shit.

Not every country coddles its bankers like Spain. Austria is shaking up the that cozy world – with a “long-yearned-for shock of liberation” for taxpayers. Read…  Austria ‘Pulls Ripcord’ on Bailouts, Lets ‘Bottomless Pit’ Hypo Alpe Bank Drag State of Carinthia into Bankruptcy

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