On Friday, May 4, the marketing department at Bankia was ready to send out a brochure to its entire branch network explaining the steps the bank was taking to shore up its finances, using millions of euros of public money to cover colossal losses. Through this operation, the troubled lender would soon show profits.
This lifesaving proposal, outlined in the pamphlet that was due to be sent out the following Monday, had been approved by the Bank of Spain the previous month.
A copy of the brochure, obtained by EL PAÍS, explains that Bankia — with 10 million clients and 20,000 employees — had decided to undertake this “one off” provision to ensure that it could meet all the risks it was facing over the next four years (2012-2015). It needed an additional 9.7 billion euros.
Bankia predicted that during the first quarter it would incur losses of some 5.5 billion euros and would need a third withdrawal from the government’s Orderly Bank Restructuring Fund (FROB) of some 6.3 billion euros. Under this strategy, along with other adjustments, Bankia would be able to show profits by the end of 2012 and would no longer be at risk, according to the brochure. It would become “one of the 10 institutions holding the most capital on the global level.” But on that same Friday, May 4, the Economy Ministry torpedoed Rodrigo Rato’s plans to explain all of this.
The Bankia president’s brochure never made it to the branches that Monday. Forced to step down, Rato resigned on May 7. The government injected some 4.35 billion euros, converted them into shares, and took control of Bankia, which groups together former savings banks Caja Madrid, Bancaja, Caja de Canarias, Caja de Ávila, Caixa Laietana, Caja Segovia and Caja Rioja.
What Rato intended to save with 6.5 billion euros, Goirigolzarri would be able to do with 19 billion
On May 9, the government appointed José Ignacio Goirigolzarri as the new Bankia president. Little more than two weeks later, Goirigolzarri announced that Bankia would need some 19 billion euros from the government — along with the 4.5 billion it would receive from the FROB. The money would go to covering the supposed projected losses caused by tax deductions that could not be applied (some three billion euros); risks from real estate loans and mortgages (13 billion euros); and for the drop of its shares in other companies (three billion). What Rato intended to save with 6.5 billion euros, Goirigolzarri would be able to do with 19 billion euros. The Bank of Spain agreed with him.
The government’s absolute support — even Economy Minister Luis de Guindos said that “the government would do all that is needed” — raised suspicions over Bankia’s past managers. Still, Rato preferred not to say a word nor offer any explanations.
Last week, he asked some board members of Caja Madrid — the savings bank in which he still serves as president — over to his home. During that meeting someone asked him about the situation but Rato remained silent with his arms crossed, according to a source who was present.
Last Wednesday, Caja Madrid’s administrative council met in a building owned by the savings bank near Puerta del Sol. There, Rato, along with his right-hand man, José Manuel Fernández Norniella, handed out copies of a three-page report, presumably drafted by another board member.
The report severely criticized the government in the way it handled the situation inside Bankia. It stated that some board members “were concerned about the negative consequences” of Goirigolzarri’s plan to recapitalize the bank, which is supported by the government, will have on stockholders, who stand to lose up to 90 percent of their investments if these provisions are met.
The report concludes that if Bankia went from 300 million euros in profits to three billion euros in losses, it was because two decrees passed by the Cabinet in 2012 obliging the institution to increase its capital were applied to the bank’s finances for 2011.
Rato didn’t want to offer an opinion about the report but everyone present understood that he agreed with most of the findings. They also interpreted it as his first offensive in what is expected to be a major battle to defend his tenure at the bank.
The Caja Madrid board unanimously approved calling on PricewaterhouseCoopers to conduct a study concerning the saving bank’s value within Bankia and its parent BFA, following the government’s decision last month. The audit will also place values on the property and works of art Caja Madrid owns.
When these audits are complete and given to the boards of Bankia and BFA, Rato intends on calling together the 335-member Caja Madrid general assembly to tell them his side of the story.
During Caja Madrid’s council meeting last Wednesday, some members defended Rato’s tenure. One even called the 24-billion recapitalization “a lucubration of financial engineering” by Goirigolzarri and De Guindos.
Another member expressed his surprise: “I don’t understand how a government can put into question the entire financial system through this operation.”