Spain Indicts Corrupt Bankers and Regulators

After the near-collapse 5-years ago of one of Spain’s largest lenders, the Bankia SA group, former head of Spain’s central bank, as well as seven other senior regulators, have been indicted by the national court. Although the charges have not yet been specified, a criminal investigation is ongoing and reports state it revolves around shares Bankia sold less than a year before the Spanish government had to take control of it, due to the lender’s portfolio of bad mortgage loans.

Evidence so far suggests that Miguel Angel Fernandez Ordonez, a former governor of the central bank, and senior regulators, had “full and thorough knowledge” of Bankia’s situation, and reported a €19.2bn ($24.7bn) loss for 2012. Ordonez had allowed Bankia to raise 3 billion euros in capital with a 2011 share beforehand, according to the national court.

Several bankers are already awaiting sentencing after being charged for mismanagement and fraud, including former chairman of Bankia, Rodrigo Rato, who along with other directors was accused of misleading investors and embezzling money.

Internal e-mails and reports show in-house exchanges between inspectors and their superiors, who called Bankia “a money-losing machine.” Another email suggested Bankia look for a new buyer (preferably a foreigner) rather than proceed with a listing, and described the lender as “a group that is not viable.”

In the Economist’s report:

Spain’s judges rarely send first-time offenders to prison for financial crimes. But in January five senior executives of Novacaixagalicia, a regional bank, became the first Spanish bankers to go to jail for being guilty of fraud and mismanagement during the financial crisis. The national court unexpectedly altered a sentence issued in 20156 that had found the five guilty of embezzlement, but had given them only suspended prison sentences.

Spain endured a real-estate crash from 2008 to 2013, costing a combined 270 billion euros in clean-up costs, and according to analysts, the country’s efforts to hold the former regulators and bankers accountable shows their institutions are working, as reported by Bloomberg. In a statement from Ricardo Wehrhahn, a partner at Roland Berger Strategy Consultants who helped conduct Spanish banking stress tests in 2012:

“This is the clean-up of the bubble years and it’s positive that it’s happening. This is actually an opportunity to show that Spain is coming to terms with what happened in the financial crisis and is drawing a line under it.”

Tom Kirchmaier, a researcher at the financial markets group at the London School of Economics, believes the actions being taken against former Bankia officials may be a positive signal to firms looking to relocate in Madrid. He states:

“It show that there are institutions that are working and that there’s a legal framework. I am a big fan of this kind of thing.”

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