Bankruptcy and liquidation of Martinsa – the end of the bubble

Martinsa-Fadesa

The 2007 merger between Martina and Fadesa could scarcely been timed worse; a fusion carried out in the last throes of the construction boom. The union was intended to pool the resources of the companies in a bid to give the created entity a stronger profile in Spain, and indeed worldwide.

The reality is that just as the project took off it began accumulating debt, with banks offering generous lending on irresponsible loans, eager to reap immediate commissions and returns in the investment, despite the foreboding overtones. The evidence of wrongdoing is overwhelming, with breaches of the banking code and basic prudential business practice widespread. The end result, after five years of frustrating and sterile bankrupcy, has seen the company fold with assets of €2.4 billion, while owing €7 billion.

The biggest losers in this disaster will be taxpayers and the state. Among the worst affected are bad bank creditors who took on up to 20% of the loans. While the Tax Agency and Social Security will enjoy preference in receiving payments from the assets being divided up, both will still end up losing money. In addition, several municipalities appear on the list of major creditors.

What this reveals is the bankruptcy leeway which is offered to bold adventurers, the reckless irresponsibility of bankers and the end result for the suffering tax payer. Managers responsible for the bankruptcy can be exonerated through the holes in the disciplinary system. Once again, it is the taxpayer that gets left on the hook.

This bankruptcy, which coincides with others of a similar nature- Habitat, Plains, Ayfos- is a mopping-up of the floor stains left by the real estate bubble. Despite the loss to the public purse, this episode closes the book on the crisis, perhaps without the guarantee that lessons have been learned along the way. Consequently, we may currently be preparing a recovery while simultaneously heading towards another bubble, the lessons from that which went before lost to ebbing of time.

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