Spanish bank scandal

LIFE IN SPAIN, GANDIA PORT, VALENCIA

Spain is being rocked, at the moment, by the news that the directors of various Spanish banks have taken huge compensation packages – despite relentlessly driving their own banks to the point of destruction.  To everyone’s amazement, some of these packages have been awarded by the directors, to themselves, just days before the Bank of Spain was forced to bail out the banks concerned.

A fine example is Novacaixagalicia whose directors shared out a whopping 23.6 million euros (between themselves) before they were replaced – just as the Spanish state was preparing to effectively nationalise Novacaixagalicia and provide emergency funds to the tune of 2.4 billion Euros.

Meanwhile, the directors of notorious CAM bank awarded themselves 12.8 million Euros as compensation for losing their jobs.  They were, of course, losing their jobs because their scandalously bad management of CAM meant that CAM needed a 2.8 billion Euro emergency injection of funds and a 3 billion Euro credit line – just to survive.

If huge ‘compensation’ packages were not bad enough then the sheer scale of misdemeanours and negligence that is now coming out about how some Spanish banks were run is astonishing.  Indeed, the current Spanish bank scandal is a story of despicable behaviour (both from politicians and Spanish banking industry management) – that belies belief.

The CAM bank, for example, provided immense loans at reduced interest (in some cases 0% interest!) to its directors.  Indeed, between 2004 and 2010 CAM lent an astounding 161 million Euros to its Directors, on extremely preferential terms.

Meanwhile, any attempt at ‘truthful’ accounting seems to have disappeared altogether.  In March of this year the CAM, for example declared Q1 profits for 2011 as 40 million Euros – however when the Bank of Spain checked the accounts they found that CAM was, in fact, in debt to 1.13 billion Euros…

By the way, be under no illusions about the directors of Cajas being modestly remunerated because they were running local savings banks. Far from it, as is illustrated by the salary of the last SEO of CAM bank, María Dolores Amorós.  She was paid 600.000 Euros pa. before she was sacked and has a pension of 370.000 Euros.  I am no anti-capitalist but I find those sums odious given that many people in Spain are called Milleuroistas – because they earn only a 1,000 Euros a month (if they have a job!).

Of course, in Spain there are two ‘types’ of banks, private banks (shareholder owned) and Cajas (sometimes known as Caixes).  The latter are savings banks in Spain and were (there are very few left now!) generally quite small with often a given bank having only a few branches situated within a local area/region of Spain.  An exception to this is la Caixa (now a shareholder owned bank) which, when still a Caja, had thousands of branches throughout Spain.

The trouble is that many Cajas, being local to an area, were highly politicised.  In fact, so politicised that some Cajas always had local politicians (in the proportion to which they held power locally) on their Board of directors.

So, in some Cajas, if the socialist PSOE party held power then there would be more socialist politicians on the Board of a given Caja than (say) conservative PP politicians or vice versa – depending upon the balance of local political power.

Of course, the Board of a Caja would always also have professional banking directors to provide some ‘objective’ banking industry input.  However, I say ‘objective’ because, of course, the ‘professional’ directors were appointed by the local politicians in power – thus providing the perfect opportunity for corruption and some serious back-scratching.

As you can imagine, the result of allowing a bank in Spain to have politicians on the Board was predictable, particularly in a country where corruption is endemic.  Indeed, some Cajas effectively became the private fiefdoms of local politicians and virtually personal funding tools – with which to dispense largesse on favoured projects.  Some of these were financial disasters from the start (such as Terra Mitica in Alicante) and many involved the funding of construction projects almost irrespective of their lunatic merits.

So, there is no surprise that the Cajas in Spain are in such deep trouble.  Indeed, an indication of their ruinous state is illustrated by the fact that there are only 15 savings banks in Spain – when there were 45 before the Spanish state restructuring of the banking system started.  This is no surprise, frankly, although it is still shocking to lean that there has been write-downs by the Spanish state of some 105 billion euros (so far) in the balance sheets of Spanish lenders.

Well, as you can imagine, the sense of rage in Spain is palpable!

Effectively, the directors of some of the savings banks in Spain, like the CAM bank and Novacaixagalicia, have awarded themselves huge compensation packages for the loss of their jobs (due to their incompetence!) – which is being paid for from bailout money supplied by the Spanish state.

Unbelievable and, to my mind, utterly unacceptable.

Of course, as always with this financial crisis (virtually anywhere in the world) you are left asking, yet again: what were the state financial regulators in Spain and the Bank of Spain itself doing – to ensure that banks in Spain were properly run, that audits were correctly undertaken and that this vital sector was healthy?

Nothing appears to be the only possible answer.

Meanwhile, what sanction for incompetence on the part of the regulators and executives in the Bank of Spain has there been (let alone the directors of the banks that were so mismanaged)?

Well, so far, I suspect – absolutely nothing…

In fact, the only sanction being suffered, of course, is by the general population of Spain.  They have been left to pay for the outrageous behaviour of the Spanish banks, whilst trying to scratch a living in a terribly damaged economy – an unimaginable experience for some director bathing in their vast, and totally unjustified pay outs.

 Nick Snelling – Culture Spain

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