Former Top Banker Testifies in Spain Behind Closed Doors

Mr. Rato was called to answer accusations that he and fellow directors at the Spanish bank Bankia presented misleading accounts for the company. He testified behind closed doors for nearly three hours and did not make a public statement afterward.

Mr. Rato, the former executive chairman of Bankia, and 32 other former executives and board members were named in a criminal investigation that was ordered this year by a judge from the Spanish National Court.

Neither Mr. Rato nor the other executives have been formally charged with any crime. But prosecutors have accused Mr. Rato and the others of presenting inaccurate accounts when Bankia became a public company in July 2011.

In his court appearance, Mr. Rato denied any wrongdoing. Instead, he argued that the government and the central bank had pressured Bankia to proceed with the stock listing, according to a person with knowledge of the testimony who declined to be identified discussing confidential proceedings.

Mr. Rato, who is also a former finance minister, appeared before Parliament in July to answer similar accusations. At the time, he rejected any suggestion that he or other directors had ignored or hidden Bankia’s collection of bad loans.

The government of Prime Minister Mariano Rajoy nationalized Bankia in early May, two days after Mr. Rato resigned from the bank. A month later, after Bankia’s new management announced that the lender needed 19 billion euros, or $25 billion, in additional capital, Madrid negotiated a 100 billion euro rescue package for the country’s banking industry.

That rescue operation is still under way. On Thursday, the European Commission cleared the restructuring plans of four smaller lenders — Banco Mare Nostrum, Caja España-Caja Duero, Caja3 and Liberbank — that were also left with an unsustainable burden of bad property loans after Spain’s construction bubble burst.

The commission has been reviewing the bailouts of the ailing banks to ensure that the government aid does not distort competition in the financial industry. In connection with the reviews, the commission has demanded that the banks make significant cuts.

Spanish banks are set to receive 39 billion euros of the 100 billion euros authorized. The banks have already received 13 billion euros of Spanish government aid since 2010 to help them stay afloat.

Bankia’s stock price has dropped since its initial public offering of stock. Many other investors have also incurred losses on preference shares, a type of convertible debt that Bankia and other banks sold mainly to their retail clients. Mr. Rato was confronted on Thursday by a large group of protesters. Some of them screamed insults at him as he made his way into the courthouse.

Bankia’s collapse has had political repercussions because the lender has longstanding ties to Mr. Rajoy’s governing Popular Party. Mr. Rato was finance minister in a previous conservative administration, alongside Mr. Rajoy, who was interior minister the time.

Bankia was the product of a merger of seven cajas, or savings banks, that was engineered as part of a government-directed consolidation of the industry.

Bankia’s initial offering was been hailed in Spain as proof that the financial industry could overcome the consequences of a decade of reckless property lending. Instead, Bankia ended up reporting a loss of almost 4.5 billion euros in the first half of this year, a record for a Spanish bank.

Article source: http://www.nytimes.com/2012/12/21/business/global/former-top-banker-testifies-in-spain.html?partner=rss&emc=rss