Spain's Brexit Banks Pitch May Get Boost From Bankia Probe

  • Summons for ex-regulators shows law working, analysts say
  • Former central-bank chief suspected of ignoring IPO warnings

The court summons served on a clutch of current and former central bankers this week may help Spain show it’s finally cleaning house after its financial crisis as it bids to tout Madrid as a haven for financial firms fleeing Brexit Britain.

Former Bank of Spain Governor Miguel Angel Fernandez Ordonez was placed under investigation for his role in allowing the Bankia SA group to raise 3 billion euros ($3.2 billion) in capital with a 2011 share sale a year before its near-collapse, the National Court in Madrid said Monday. Others named as suspects include the former Deputy Governor Fernando Restoy and Julio Segura, the former head of the securities regulator CNMV. Three current central bank officials resigned their posts after they were also named.

The Bank of Spain and the CNMV both said their officials have done nothing wrong.

Spain is trying to leave behind a painful past that saw its banks forced to book a combined 270 billion euros in clean-up costs as a real-estate crash rocked the industry from 2008 to 2013. Holding former regulators to account for their actions in propping up Bankia -- with criminal charges possible -- shows Spain’s institutions are working, analysts said.

“This is the clean-up of the bubble years and it’s positive that it’s happening,” said Ricardo Wehrhahn, who helped conduct Spanish banking stress tests in 2012 as a partner at Roland Berger Strategy Consultants and is now Madrid-based managing partner at Intral Strategy Execution.“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.”

Bankia’s 2011 share sale included 1.85 billion euros of stock sold to retail investors, a year before it’s 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 state aid, of which 1.8 billion euros has so far been recovered from dividends and the sale of a stake in the bank.

With its stock of bad bank loans now down to 2011 levels, Spain is turning the
page on its banking crisis after 13 straight quarters of economic growth.

That’s in contrast with Italy, where the government is still trying to revive a
banking industry burdened with 360 billion euros of troubled loans. Bank of Greece Governor Stannis Stournaras said this week the country must reach an accord with creditors on the release of bailout funds or risk another recession.

E-mail Trail

The court upheld a claim that the ex-Bank of Spain officials approved the sale in the face of repeated warnings from inspectors that it wasn’t viable and would lead to serious losses. E-mails from an inspector warning of the group’s parlous state left no doubt about the information that top officials at the central bank had at their disposal, the court ruling said.

The Bank of Spain has full confidence in its staff caught up in the investigation which it trusts will clarify doubts about its role in efforts to recapitalize the Bankia group, the regulator said in an e-mailed statement Tuesday.

Ordonez will give testimony on March 16 and Segura and Restoy on March 13, the National Court said in an e-mailed statement Wednesday.

Spain is seeking to present Madrid as a potential future home for financial firms forced out of London as the U.K. prepares to leave the European Union.

The market regulator is setting up a fast-track authorization service in English as the government extols the virtues of Spain’s relatively low cost-of-living, office rentals and corporate taxes. Spain is among the possible locations that Citigroup Inc. might choose for relocating parts of its London business, Jim Cowles, its head of Europe, Middle East and Africa, said last month.

The fact that a Spanish court has called top former regulators to account for themselves for their role in the Bankia saga may be a positive signal to firms that may be mulling a move to Madrid, said Tom Kirchmaier, a researcher at the financial markets group at the London School of Economics.

“It shows that there are institutions that are working and that there’s a legal framework,” he said by phone. “I am a big fan of this kind of thing.”

    Before it's here, it's on the Bloomberg Terminal.