SPANISH CRISIS: Former IMF and Bankia boss charged with massive fraud

Spain’s Bob Diamond is Rodrigo Rato. The difference is, Rato is heading for jail

Spain’s anti-bank majority is celebrating a major victory after the country’s high court opened a criminal investigation into Rodrigo Rato, the former head of Spain’s biggest mortgage lender, Bankia. Rato, once a big wheel within the IMF, has been given a court date to face criminal fraud accusations relating to the downfall of Bankia, the banking giant at the epicentre of Spain’s economic disaster.

Rodrigo Rato, once a powerful economic minister, has suffered a cliff-fall from grace.  An internationally respected official and still well-regarded inside Rajoy’s ruling centre-right People’s Party, Rato has become the focus of  public anger about banking practices and recklessness.

Prime Minister Mariano Rajoy forced Rato, 63, to quit Bankia seven weeks ago, just before the bank was nationalised and became the biggest-ever failed Spanish lender. On May 10th this year, The Slog posted:

‘Sources in troubled Spanish bank Bankia confirmed yesterday that auditors Deloittes had discovered what they called ‘an inflated statement of liquidity’ for 2011 in the Caja division of the Group. Its shares dropped 6 percent on the news, its third straight day of heavy losses. This can only add to the woes of the bank, which are considerable already. But it also adds to the suspicion (noted here and elsewhere since late 2010) about the veracity of reporting in the Spanish finance sector. The Slog’s view – based on local information – has always been that both the level of unsold property and the degree of arrears there are hugely understated.’

Clearly, senor Rato is seen as having been very deeply involved in such optimistic reporting. He will not be getting worldwide TV coverage while filibustering with an onanistic Parliamentary Committee, however: more than likely, he will be sewing Spanish onion-bags before too long.

26 thoughts on “SPANISH CRISIS: Former IMF and Bankia boss charged with massive fraud

  1. And on this side of the Channel, the Serious Farce Office have stuck their totally useless oar in: The Serious Fraud Office (SFO) has confirmed that it has formally launched an investigation into the rigging of the inter-bank lending rate, Libor. Now there’s a kiss of death.


  2. It remains to be seen how far the SFO investigation gets but it’s not difficult to conclude that Britain is among the countries that fails to prosecute criminals in the finanacial sector and elsewhere (including the political elites), often despite copious evidence being available of wrongdoing and conspiracy. Prosecutions that we see from time to time tend to be token. It is evidence of the fascist practices that operate.


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  4. Glad to see though that at least somewhere somebody is facing criminal charges for this kind of thing… In our neck of the woods (between Cameron and Merkel), that would be about as rare as apparently it is in Britain.


  5. Well according to the FT the middle management at various banks are scrambling for lawyers. Not the top dogs. Those guys are too smart to get their fingers dirty. It’s always the middle management that push things too far in my experience. Middle managers have too much to lose and it’s too easy for them to lose it – and that’s why they fiddle the figures to keep the boss happy.


  6. Which is not to say that the top dogs don’t know precisely what’s going on, of course. Since their bonuses depend (in theory, at least – these days… not so much) on the performance of the organisation, you can bet they keep close tabs on what their minions are up to. Then they simply ensure that the paper trail doesn’t lead to them. No loss proposition, really. Reap the benefits of the dodgy behaviour but some other bugger gets the blame when the scam gets found out.


  7. There are plenty of very expensive defence lawyers sitting in the long grass ready to put up a barrage…with client assets easily able to defend their case.
    The famous case of Swissair which went bust, Swiss prosecution found it impossible to charge the accused managers of missing monies, some drifted adroard.
    Leading judge dismissed cases as the government prosecution costs would exceed fines and admitted wouldn’t be able to collect.


  8. “The government consists of a gang of men exactly like you and me. They have, taking one with another, no special talent for the business of government; they have only a talent for getting and holding office.Their principal device to that end is to search out groups who pant and pine for something they can’t get, and to promise to give it to them. Nine times out of ten that promise is worth nothing. The tenth time it is made good by looting ‘A’ to satisfy ‘B’. In other words, government is a broker in pillage, and every election is a sort of advanced auction on stolen goods.” – Someone posted that on Zero Hedge. I thought it was appropriate to the issue.


  9. I realize that the comment pasted below reflects issues in the US however I think it points out quite well that going after Diamond is more of a feel good issue, it’s the whole system that is corrupt. Below from Bloomberg.

    Locke_in_the_modern_age 13 hours ago
    If the point of this piece is to call for a cleansing of our banking institutions, I ask, why stop there? Lets do a thorough cleansing of our governmental institutions, and hold them to the same accounting and ethical standards we hold our business leaders.

    In particular, lets stop the fiction that state and local medical and pension trust funds are solvent – any governor that claims they are should resign.

    Let’s have Fannie Mae and Freddie Mac mark their assets and liabilities to market on a daily basis.

    Let’s have the FHA stop pretending they won’t have to ask for a bailout.

    Let’s stress test the Fed’s balance sheet to a 300 bps increase in long term interest rates and see if the Fed has enough capital.

    If a lower level person in any cabinet department is accused of any wrongdoing, let’s have the cabinet secretary resign.

    If any police officer, teacher, fireman or any other state or local worker is accused of wrongdoing lets have the mayor, superintendent or governor resign.

    If we want to clean up our society, we can’t play favorites. It’s time the press focus not just on evil bankers and political opponents, but all sleaze, including those in their own industry and of similar political persuasion.


  10. “If a lower level person in any cabinet department is accused of any wrongdoing, let’s have the cabinet secretary resign.

    If any police officer, teacher, fireman or any other state or local worker is accused of wrongdoing lets have the mayor, superintendent or governor resign.”

    By heck Bill that’d be fun to watch in action.


  11. @JS: @Woodgnome puts my own view of how things are managed well.

    But I still believe it remains to be seen how far any SFO investigation gets, not least because the Libor scandal almost certainly involved – not only multiple banks and the BBA – but also people in very high places at the time: No.10, Treasury and the BoE.


  12. @BC: Absolutely true. If there’s one lesson we’re all learning these past few years it’s that virtually everything to do with officialdom is either corrupt or utterly corrupt, usually driven by a lust for power or plain greed. It needs sorting out and there needs to be clear lines of accountability in all organisations that go right to the top.


  13. Any reasonably competent beancounter (no need to have an MBA in Corporate Finance and International Ponzirie) could tell anyone who cared to listen that Banks’ reported results and financial position are more akin to Hans Anderson than a true and fair view. Of course real accountants can’t audit banks – this needs the specialist expertise and brown nosing of the big four – big 5 until Enron.

    However in comparison to UK and US banks, European banks work on a set of accounting policies that are derived from a parallel universe. Zen? Just because they happen to contain relatively few additon errors does not mean that they make any sense at all. Assets are really losses, profits are really liabilities. Easy when you know what to look for.

    Tie this into a corrupt political system with an umbilical cord of unsustainable BS election promises and EU derived hubris and see where it gets you. No doubt it will be the UK and the City’s fault (no admirer) that all this has been shown to be a crock, but there you are…


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  15. I don’t think any token SFO investigation will get very far but it will delay things long enough for the public to either forget about it or for new events and scandals to take its place. The best hope of of seeing any one brought to justice would be for their swift extradition to the United States. There may be be a silver lining to our lopsided subservient extradition treaty with Uncle Sam after all.

    Just imagine how wonderful it would be to see Gordon Brown extradited and perp walked onto an aeroplane at Preswick bound for a US penitentiary and public show trial with his lawyers haplessly pleading he has Aspergers syndrome and manic depression.


  16. Pingback: John Ward – Spanish Crisis : Former IMF And Bankia Boss Charged With Massive Fraud – 6 July 2012 | Lucas 2012 Infos

  17. Wonderful as it might be, I am fundamentally opposed to extradtion to the US. Just send Gordy to Broadmoor from the criminally insane!


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  19. “more than likely, he will be sewing Spanish onion-bags before too long.”

    I very much doubt it; Spain doesn’t do fast in its legal system. If something is ‘fast-tracked’ it my be over within 10 years, otherwise 12 plus is the norm. The mayor, and half-a-dozen other officials, were indicted for fraud in a town near me in 2001 and the case is still on going. Anecdotal evidence indicates that this is not a localized issue.



  20. Completely agree with Morvan, in Spain justice is slow and usually not very efficient. Of the 33 people charged in relation to the Bankia fiasco I doubt any will be convicted let alone see any time in prison. A bit of background on this, people can be charged (imputado) on the basis of a complaint (denuncia) which is what has happened here as Union Progreso y Democracia, UPyD, a minority party put in a formal complaint regarding this matter. The judge that is due to investigate the case (yes, in Spain the police don’t do the investigation before it gets to court, its the courts that order the investigation if they think there is a case to answer) has decided that there is a possible case to answer. The prosecution has stated that whilst there is no real evidence of wrongdoing this is a good place to start an investigation.

    This brings me to another matter, which is that the Bankia fiasco can be blamed on the last Government and its inept reorganization of the financial sector in Spain. Rodrigo Rato was the President of Caja Madrid when this financial re organization took place, the Government wanted the troubled Caja’s to be sorted but didn’t want to stump up any money so they came up with the brialliant idea of making some of the bigger more financially viable Caja’s take on the smaller more problematic ones. Bankia was the result of this this process of amalgamating the good Caja’s with the rotten ones. That is not to say that Mr Rato is blameless.
    Another interesting thing about RAto is that he was after all the guy in charge of the IMF from 2004 to 2007, he came with a program of much needed reform and left suddenly and unexpectedly for ‘personal reasons’ in October 2007 just as his reforms were starting to be implemented.


  21. A block of finished (luxury) appartments in 2007 not far from Alicante in Spain went on market for a combined sales price of about 4M Euros. Still lying empty, never sold, best offer for the lot was well under 2M. The financiers valued the block at 4M and the developers borrowed in the region of 3M, the developers have disappeared. Bank sitting on 3M collateral. Real value of all appartments perhaps less than 1.5M. This is repeated all over the Med.
    Borrowing money in the Med for the last 20 years for overpriced properties was easy, and overbuilding just hastened the days of reckoning.
    The banks and their off-shoots are covering up massive potential write-downs.


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