Bankia, created from the merger of seven savings banks lead by Cajamadrid and Bancaja, and its July 2011 stock market listing, have become a major headache for many people: the bank’s shareholders, the current management team, the auditor, the Bank of Spain and the stock exchange regulatory body CNMV. The shambles that is Bankia could end up negatively affecting the bank’s accounts and its image, as well as the credibility of whoever did the auditing and authorised its listing.
Yesterday, the Supreme Court dealt Bankia a harsh blow. Its civil court confirmed two sentences passed by the Provincial Courts in Valencia and Oviedo, obliging the bank run by Jose Ignacio Goirogolzarri to give the money back to two investors who bought shares in the lender. The reason for the decision was the fact that there were “serious inaccuracies” in Bankia’s IPO prospectus.
Apart from dismissing Bankia’s appeals regarding the principal issue – returning the money invested in its shares – the Supreme Court also rejected the idea that the criminal proceedings still pending in the High Court can halt individual claims in the civil court.
The key to the Supreme Court’s decision lies in the report elaborated by two inspectors whom the Bank of Spain assigned to the High Court. This report maintains that Bankia’s accounts prior to its 2011 IPO were not a true reflection of the bank. According to the inspectors, there were “accounting errors” on all fronts which failed to show Bankia’s real situation and which its auditor, Deloitte, should have picked up.
But in a recent reply to the court in Navalcarnero (Madrid), and in contrast to what the experts say, the Bank of Spain confirmed that there were indeed changes made to the valuations of the 2011 accounts. It also said that revisions were carried out in other banks’ integration operations. The Bank of Spain also said that past financial situations cannot be evaluated taking into account information available now and not at the time (as the inspectors have done).
Another aspect highlighted by the Bank of Spain is that the economic situation changed unexpectedly in the second half of 2011, after Bankia’s IPO. This affected all the banking sector, including Bankia. “In contrast to what had been predicted, Spain entered a totally unforeseen second recession, and the crisis worsened in the Eurozone as well. This made it extremely difficult for the banks to get wholesale financing and transfer this to financing the real economy,” the supervisory authority said.
The Supreme Court’s ruling provides the opportunity for plaintiffs to recover the money they invested in Bankia’s IPO. There are outstanding demands related to share subscriptions worth 819 million euros, but the bank has made a provision of up to 1.840 billion euros. This is due to the fact that the vast majority of the cases which went to court were being lost. For this reason, Bankia’s shares only fell 1% when the Supreme Court’s decision was made known. But the losses did increase slightly more in the final part of the session.