Goirigolzarri’s Aid Demand Helped Push Spain to Bailout

Jose Ignacio Goirigolzarri, the man charged with cleaning up Bankia group, helped set Spain on its course to a banking bailout by asking for 19 billion euros ($23.8 billion) in state aid two weeks after becoming chairman.

The demand for aid, made in consultation with the government and the Bank of Spain, revealed the deepening hole in the balance sheet of Bankia, the country’s third-biggest lender, and by extension other parts of the nation’s financial system.

“He was the one who has thrown back the curtain in Spain itself and said ‘yes it really is this bad,’” said Simon Maughan, a financial industry strategist at Olivetree Securities Ltd. in London. “It wasn’t his intention to trigger a bailout but it may have been an unintended consequence.”

Goirigolzarri, the former second-in-command at Banco Bilbao Vizcaya Argentaria SA (BBVA), was named chairman of the Bankia group on May 9. The size of the request for aid by the bespectacled Basque banker and history buff from the industrial port city of Bilbao helped propel Spain to seek as much 100 billion euros for its lenders by underscoring the fragile state of their balance sheets and the state’s finances.

Crisis ‘Detonator’

Spain sought aid for its banks on June 9, becoming the fourth euro member to seek a bailout since the debt crisis began almost three years ago. The nation’s plea for funds followed the publication a day before of an International Monetary Fund report saying Spain’s lenders would need at least 37 billion euros to withstand a weakening economy. Spanish bankers have no doubt what triggered the bailout.

“The detonator for this latest phase of the crisis has been the situation of a large institution with enormous capital needs and the apparent incapacity to cover them through its own means,” Angel Ron, the chairman of Banco Popular Espanol SA (POP), told shareholders in Madrid yesterday.

Shares in Popular fell 3.6 percent to 1.63 euros at the close of trading in Madrid. Bankinter SA declined 4.6 percent and Bankia SA (BKIA) lost 1.9 percent, as the yield on Spain’s 10-year bond rose to 6.68 percent. Banco Santander SA (SAN) and Banco Bilbao Vizcaya Argentaria SA, the country’s biggest lenders, also fell.

Spain’s request for a bailout came 15 days after Goirigolzarri, 58, said that the Bankia group would need state funds to provision for greater losses on residential mortgages and lending to companies as well as real estate. The state said in May it would take control of the lender by converting 4.5 billion euros of preferred shares in Bankia’s parent, Banco Financiero y de Ahorros, into voting shares.

‘Serious Analysis’

“This plan has been agreed with the Bank of Spain and the economy ministry,” Goirigolzarri told reporters in Madrid on May 26. The 19 billion-euro figure was “the product of a very serious analysis that we shared amongst ourselves,” he said. Goirigolzarri declined to comment for this article.

The amount sought by Bankia is equivalent to about 2 percent of Spanish gross domestic product and four times the cash in Spain’s bank-rescue fund. Bankia’s needs forced the hand of Prime Minister Mariano Rajoy, who said as recently as May 28 Spanish banks wouldn’t need a European bailout.

Bankia made the request after restating the group’s 2011 results, showing a 3.3 billion-euro loss rather than a 40.9 million-euro profit. Shares in Bankia have plunged 72 percent since July, when it raised more than 3 billion euros in an initial public offering. The formation of Bankia group and the IPO are under investigation by Spanish prosecutors.

Crisis Spreads

Bankia’s petition for state funds ratcheted up the pressure on Rajoy because it showed that Spain’s bad loan crisis was spreading beyond real estate to company and consumer loans as the economy worsened. Spain had already forced lenders to take provisioning charges of 67 billion euros to cover real estate- linked losses with decrees in February and May.

“Trying to estimate loan losses in an economic environment like Spain’s is a bit like shooting at the moon with a peashooter -- it’s very hard to be sure you can come up with an accurate number,” said Daragh Quinn, a banking analyst at Nomura International in Madrid. “Those numbers were always going to come out and maybe other banks will have to follow.”

Goirigolzarri’s assessment showed the bank to be in much worse shape than the previous management had said. The demand for a state capital injection came three months after his predecessor, former IMF Managing Director Rodrigo Rato, said the Bankia group could meet the 5.1 billion-euro requirements of this year’s first provisioning order without needing more aid.

Spain’s El Pais newspaper said June 3 that Rato had planned to clean up the lender by seeking just 6.5 billion euros.

IMF Report

The 19 billion-euro aid request irked some bankers.

“From the point of view of the rest of the industry and society at large, it’s a source of scandal because it affects us all negatively,” said Maria Dolores Dancausa, chief executive officer of Bankinter SA (BKT), in an e-mailed response to questions from Bloomberg.

Bankia asked for more money than the IMF deemed necessary in its analysis. The IMF’s stress-testing of Bankia’s books revealed a shortfall of 13 billion euros to 14 billion euros, meaning that the lender asked for a buffer to adjust company stakes to market value and write down deferred tax assets, an official at the Washington-based IMF, who declined to be identified, said in a June 8 briefing for reporters.

Second Lender

Goirigolzarri’s appointment as Bankia chairman marks his return to the top echelon of Spanish banking.

In 2009, at the age of 55, he resigned his post as president and chief operating officer at BBVA, leaving Spain’s second-biggest lender with a pension of more than 50 million euros. The bank’s board had allowed Chairman Francisco Gonzalez to extend his term as the bank’s top executive until the age of 70 even though Gonzalez had repeatedly said that Goirigolzarri would succeed him when he completed his mandate.

Goirigolzarri studied economics and business at Bilbao’s Deusto Commercial University. Other alumni of Deusto University include Banco Santander SA Chairman Emilio Botin and CEO Alfredo Saenz, as well as Juan Maria Nin, the CEO of CaixaBank (CABK) SA.

Bilbao’s growing steel and shipyard industries during the country’s industrialization promoted the city’s development as a banking center, said Fernando Gomez-Bezares, a professor at Deusto. Goirigolzarri maintains links with the school and gave a speech to graduates in 2003, Gomez-Bezares said.

Efficiency Gains

In 1977, he joined Banco de Bilbao in its planning department and worked his way up as the lender grew through mergers to become general director of Banco Bilbao Vizcaya in 1992 and head of BBVA’s retail banking operations in 2001. He took the top executive role at the bank under Gonzalez in 2001.

On Goirigolzarri’s watch from 2001 to 2009, BBVA’s costs as a proportion of revenue fell to 40.4 percent from 50.4 percent as he focused on wringing efficiency gains from the bank.

“He is a real professional, open-minded and always striving for the best,” said Reyes Calderon, a faculty dean at the University of Navarra who got to know Goirigolzarri because of their shared interest in the life of Diego de Gardoqui, the Bilbao-born merchant and first Spanish envoy to the U.S. appointed in 1785. “He was born in a port and he knows how to manage when the seas are calm and stormy.”

At Bankia, the lender with the biggest Spanish asset base, Goirigolzarri is leading a group with 3,300 branches, 183 billion euros of loans and 161 billion euros of deposits. It has more than 300 billion euros in assets, equivalent to almost a third of Spanish GDP. The Bankia group was formed in 2010 from a merger of seven savings banks led by Caja Madrid and Valencia- based Bancaja.

‘Excellent Banker’

Goirigolzarri named Jose Sevilla, a former head of risk at BBVA, as Bankia’s director general, and cleared out the listed bank’s board. The bank, which took 4.5 billion euros of state aid in 2010, will give plans to sell stakes in companies when it presents its strategy this month, Goirigolzarri said May 26.

“He is an excellent banker, one of the best in Spain,” said Alvaro Cuervo, director of the University College for Financial Studies in Madrid, referring to Goirigolzarri. “With him and his team in charge, Bankia can compete head to head with Santander and BBVA because the network is very potent if it’s properly administered.”

As for Goirigolzarri’s motives in emerging from semi- retirement to take on the role at Bankia, it gives him the chance to show he’s still “a great banker,” said Cuervo.

“If he does well at Bankia, it’s entirely possible that further down the line the shareholders of BBVA take note of what a wonderful job he has done and maybe ask whether he shouldn’t be running their bank,” said Olivetree’s Maughan.

To contact the reporter on this story: Charles Penty in Madrid at cpenty@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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