Bankia is a Spanish bank consisting of several failed financial institutions with largely conservative political direction. On 11 June 2012 the relatively young political party Union, Progress and Democracy (UPyD) filed a lawsuit against the directors of Bankia and its main subsidiary for alleged fraud, misappropriation, falsification of financial statements in connection with corporate crime, mismanagement and scheme to alter the price of assets. The Indignant Protesters (M-15) raised 15,000 euros by crowd funding, and filed another lawsuit for false accounting and commercial fraud.
Judge Fernando Andreu agreed to hear both complaints which called 27 defendants which included: Rodrigo Rato (President and former conservative minister of Economy), José Luis Olivas (Deputy director and former conservative president of the Valencia region), Angel Acebes (director and former secretary general of the conservative party) and Francisco Verdú (an experienced banker and sometime consultant to the construction industry). Also called as witnesses were former Governor of the Bank of Spain, Miguel Angel Fernández Ordóñez, the president of the National Securities Market, Julio Segura, and the author of the Bankia audit conducted by Deloitte, Francisco Celma. However, the court dismissed the request to extend the complaint to four other directors who were not in the Bankia prospective but who took office after the company was listed on the stock exchange.
The third-largest Spanish bank—formed after a merger of seven troubled cajas in late 2010—it also holds €40.83 billion in toxic real estate assets. That’s the highest quantity of domestic real estate assetsof any Spanish bank, investments which have been failing in the wake of a housing bubble.
Just a few weeks ago, the Spanish government essentially nationalized the troubled lender. The Spanish bank bailout fund (the Fondo de Reestructuracion Ordenada) converted its €4.5 billion in holdings in Bankia’s parent Banco Financiero de Ahorros into a 45 percent controlling stake in the company. It also shook up Bankia’s board, unseating former chairman Rodrigo Rato with BBVA-alum Jose Ignacio Goirigolzarri. It also agreed to inject some €19 billion into the troubled lender to keep it afloat.
First, Spain has been considering giving Bankia funding in the Spanish government bonds, which it would use as collateral against a loan from the European Central Bank. While analysts have doubted the likelihood of this plan, a source close to Spanish PM Mariano Rajoy and consulted by Reuters Espana said, “The ECB has been consulted about this extensively. This solution has already been utilized before by Germany and Ireland and is perfectly valid…I understand that [the ECB] doesn’t have any problem [with it].”
The other possibility would be issuing government debt in the markets to fund the bailout, according to a Reuters source. While this is technically a viable option, Spain’s willingness to place an even bigger burden on government debt is troubling because the country is already paying a steep 5.4 percent on three-year borrowing and 6.4 percent on ten-year borrowing. This would also spread losses out over the wider Spanish populace, something that the government has been loathe to do.