MADRID — Miguel Blesa, the former executive chairman of Caja Madrid, which is now part of Bankia, has become the first prominent Spanish banker to enter prison since the start of the financial crisis. He is accused of leaving his bank saddled with huge losses because of the takeover of a bank based in Miami in 2008.

The problems at Caja Madrid were part of the cascading issues that eventually undermined Bankia, which was one of the biggest lenders in Spain before the government seized it last year, setting off a crisis that resulted in the country’s banking system requiring a €40 billion, or $51.3 billion, European bailout.

Mr. Blesa, 65, spent Thursday night in a Madrid prison after failing to post bail of €2.5 million. The Madrid judge in charge of the case, Elpidio José Silva, decided that Mr. Blesa should be jailed and have his passport withdrawn because there was a risk that he would flee the country. The judge did not elaborate on the reason for his decision.

Mr. Blesa has denied wrongdoing and has not been formally charged with any crime. His relatives were scrambling on Friday to raise the money to get him out of prison, according to Spanish news reports. The bail was set at €2.5 million because that is equivalent to the severance payment that Mr. Blesa received when he left Caja Madrid in 2010.

He is accused by Manos Limpias, or Clean Hands — a far-right association that has been pursuing several corruption cases — of buying City National Bank, based in Miami, in 2008 for an inflated price without following due diligence by checking into City National’s underlying liabilities. Judge Silva is also investigating whether the purchase involved falsifying documents.

The case highlights how Spain’s banking troubles stretched beyond its borders, as cajas, regional savings banks that are tightly controlled by regional politicians, tried to emulate the overseas expansion of their commercial peers during the country’s economic boom.

Over all, about 100 Spanish bankers have been named as suspects in continuing court cases that have mostly focused on allegedly fraudulent loans, conflicts of interest and excessive compensation packages granted by collapsed cajas.

Mr. Blesa, a former official in Spain’s Economics Ministry, became chairman of Caja Madrid in 1996, shortly after José María Aznar, who was a student with Mr. Blesa, was elected prime minister. In April 2008, the bank announced that it would buy 83 percent of City National Bank for $927 million, following the lead of Spanish commercial banks that had already expanded in the United States. Caja Madrid bought the remainder in 2010 for $190 million.

That purchase price was roughly equivalent to the book value of the bank, but Caja Madrid ended up having to absorb about €500 million of losses generated by City National’s Miami unit. The deal threw Caja Madrid into “a perfect storm,” according to the court filing, at a time when it was also facing rising domestic problems linked to the bursting of Spain’s housing bubble.

Mr. Blesa was replaced as head of Caja Madrid in 2010 by Rodrigo Rato, a former managing director of the International Monetary Fund who was finance minister in the Aznar government.

Under Mr. Rato, Caja Madrid was at the center of the formation of Bankia, a seven-way merger of cajas in 2011. The combination was designed to consolidate the caja sector by allowing stronger entities to absorb the losses of weaker and smaller ones threatened with collapse.

Instead, Bankia sank under the collective weight of bad property loans and required €18 billion in European rescue money to keep it afloat. The bank, which was nationalized a year ago, posted a loss for 2012 of €19.2 billion, a record for the Spanish banking industry.

Bankia is now the target of several lawsuits. Last July, Mr. Rato appeared in court after he was named along with 32 other former Bankia executives and board members in a criminal inquiry into potentially misleading accounts at the time of Bankia’s 2011 listing, which involved tens of thousands of the bank’s retail clients buying into the stock offering. The former Bankia executives and board members deny wrongdoing and have also not been charged so far.

Mr. Blesa, meanwhile, faces separate accusations, also from Manos Limpias, relating to his time at Caja Madrid, notably concerning a credit line of €26.6 million granted in 2008 to Marsans, a travel company that subsequently went bankrupt. Marsans was owned by one of Spain’s most prominent entrepreneurs, Gerardo Díaz Ferrán, who also sat on the board of Caja Madrid.

Mr. Blesa is the first senior Spanish banker to enter jail in almost two decades. Mario Conde, a flamboyant lawyer and banker, was jailed in December 1993 and later convicted for fraud linked to the collapse of Banesto, another major Spanish institution. Banesto was subsequently taken over by Banco Santander.

Article source: http://www.nytimes.com/2013/05/18/business/global/spanish-banker-goes-to-prison.html?partner=rss&emc=rss