Ex-Officials Stand Trial on Bankia IPO That Sparked Spain Crisis
(Bloomberg) -- Former officials at one of Spain’s largest banks are in court Monday to answer accusations that they misled investors about the state of the lender’s finances ahead of its 2011 IPO.
Rodrigo Rato, the former Bankia SA chairman and ex-head of the International Monetary Fund who is already serving time for another conviction, is the most prominent of 34 defendants who will be probed over whether they deliberately falsified accounts and hid information from investors.
Bankia raised more than 3 billion euros ($3.4 billion) in a 2011 share sale, including 1.85 billion euros from retail investors, a year before its near-collapse forced Spain to seek 41 billion euros in European bailout funds to shore up its banking system. The Bankia group’s rescue required more than 22 billion euros in public aid.
Six years after the European Union stepped in to bail out its financial system, Spain is still dealing with the aftermath and winning back public trust is the industry’s toughest challenge, Bankia Chairman Jose Ignacio Goirigolzarri said last week.
“Bankia’s IPO was a milestone in Spain’s financial crisis,” said Ricardo Wehrhahn, managing partner at Intral Strategy Execution in Madrid. “It was the starting gun for the crisis.”
The government looks like it may struggle to meet a December 2019 to offload its 61 percent stake in Bankia as the lender’s share price continues to fall, making a sale in the open market politically unpalatable.
Regulators at the Bank of Spain and the National Securities Market Commission authorized Bankia’s initial public offering despite repeated warnings by the central bank’s inspection team that the group wasn’t viable, according to the National Court in Madrid.
Bankia hired investment banks including Deutsche Bank AG, JPMorgan Chase & Co., Bank of America Corp. and UBS Group AG to manage the share sale as it sought to plug a shortfall in minimum capital requirements.
The opportunity was largely snubbed by institutional investors who had concerns about the amount of soured real estate loans the bank was carrying. The bank instead turned to individuals and its own customers. Many of those have already been compensated. The bank has paid out 1.9 billion euros in out-of-court settlements. Of an original 11,000 initial accusers there are 168 remaining who are owed a total 2.1 million euros, according to calculations by Bankia.
Rato’s lawyer, Ignacio Ayala, didn’t immediately respond to a phone call and email seeking comment.
The trial is expected to last seven months.
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