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BANKING

Ex-IMF chief Rato acquitted over Spain’s Bankia scandal

A Spanish court on Tuesday acquitted former IMF chief Rodrigo Rato and all other defendants of fraud and falsifying the books during the botched 2011 floatation of Spain's Bankia, a symbol of the country's banking crisis.

Ex-IMF chief Rato acquitted over Spain's Bankia scandal
The image of a smiling Rato ringing the bell and sipping champagne on July 20, 2011 to mark the start of Bankia's listing has since become a symbol of the scandal. Archive photo: AFP

The National Court, which handles major criminal cases, said the bank's stock listing had received approvals “from all necessary institutions”.    

The listing was very popular with small investors, who lost their shirts when the state had to nationalise the bank the following year and inject €22 billion ($25.7 billion) to keep it from collapsing at a time when the Spanish economy was mired in crisis.   

That in turn prompted the state to borrow €41 billion from the European Union to keep the rest of Spain's banking sector afloat as investor confidence had been shaken.

Rato, 71, who led the International Monetary Fund from 2004 to 2007, led the merger in 2010 of Caja Madrid, which he headed at the time, and six other struggling regional savings banks into Bankia.

The image of a smiling Rato ringing the bell and sipping champagne on July 20, 2011 to mark the start of Bankia's listing has since become a symbol of the scandal.

More than 300,000 small shareholders bought share packages for a minimum of €1,000, attracted by a major advertising campaign and the profits boasted by the bank.

But in 2012, after a disastrous year that saw its share price collapse, the bank admitted that in the year it listed, it had actually made a loss of close to three billion euros.

'Shameful'

Rato, head of the bank at the time, was accused of falsifying the books and fraud to the detriment of investors. He faced a jail sentence of eight and a half years if he had been convicted.

The 31 other people and entities also on trial, among them Bankia, were also cleared.

In its ruling, the court said the prospectus for the listing contained “more than sufficient information for investors… to form a reasoned opinion on the value of the company” and contained a “comprehensive and clear description of the risks”.

It also argued that the procedure which led to Bankia's listing was “intensely and successfully supervised” by the Bank of Spain and financial market authorities which approved it.

During the trial, Rato said Spain's central bank was fully aware of everything that went on at the lender.

“The Bank of Spain would tell us 'do this, do that'. And if at some point we did something they didn't feel was good, it said no,” he told the court.    

A group of activists dubbed “15MpaRato”, which launched one of the first lawsuits that led to the trial, called the ruling “shameful” and said the listing was a “scam”.

Both sides have five days to appeal the ruling.

Merger

The state, which still holds just under 62 percent of Bankia, has recognised several times that it will never be able to recover much of the money it disbursed.

The directors of Bankia and its rival Caixabank last month approved a merger to create Spain's biggest domestic bank by assets. The Spanish state will hold a 16.1 percent share in the new group.

Since October 2018, Rato has been serving a four-and-a-half-year sentence for misusing company credit cards for personal expenses while working at Bankia between 2010 to 2012.

Rato was economy minister and deputy prime minister in the conservative government of Jose Maria Aznar from 1996 to 2004, before going on to head the IMF.

READ MORE: Ex-IMF chief Rato 'seeks forgiveness' as he starts jail term in Spain 

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MONEY

Rampant branch closures and job cuts help Spain’s banks post huge earnings

Spain’s biggest banks this week reported huge profits in 2021 and cheered their return to recovery post-Covid, but ruthless cost-cutting in the form of thousands of layoffs, hundreds of branch closures and the removal of many ATMs have left customers in Spain suffering, in this latest example of ‘Capitalismo 2.0’. 

A man withdraws cash from a Santander branch in Madrid.
More than 3,500 Santander workers lost their jobs in Spain in 2021 and a further 2,000 more employees working for Santander across Europe were also laid off. Photo: PHILIPPE DESMAZES / AFP

Spanish banking giant Santander on Wednesday said it has bounced back from the pandemic as it returned to profit last year, beating analyst expectations and exceeding its pre-COVID earnings.

Likewise, Spain’s second-largest bank BBVA said on Thursday that it saw a strong rebound in 2021 following the Covid crisis, tripling its net profits thanks to a recovery in business activity.

It’s a similar story for Unicaja (€137 million profit in 2021), Caixabank (€5.2 billion profit thanks to merge with Bankia), Sabadell (€530 million profit last year), Abanca (€323 million profit) and all of Spain’s other main banks.

This may be promising news for Spain’s banking sector, but their profits have come at a cost for many of their employees and customers. 

In 2021, 19,000 bank employees lost their jobs, almost all through state-approved ERE layoffs, meant for companies struggling financially.

BBVA employees protest against layoffs in May 2021 in Madrid. Spain’s second-largest bank BBVA is looking to shed 3,800 jobs, affecting 16 percent of its staff, in a move denounced by unions as “scandalous”. (Photo by GABRIEL BOUYS / AFP)

Around 11 percent of bank branches in Spain have also been closed down in 2021 as part of Spanish banks’ attempts to cut costs, even though they’ve agreed to pay just under €5 billion in compensation.

Rampant branch closures have in turn resulted in 2,200 ATMs being removed since the Covid-19 pandemic began, even though the use of cajeros automáticos went up by 20 percent in 2021.

There are now 48,300 ATMs in Spain, levels not seen since 2001.

READ MORE:

Apart from losses caused by the coronavirus crisis, Spain’s financial institutions have justified the lay-offs, branch closures and ATM removals under the premise that there was already a shift to online banking taking place among customers. 

But the problem has been around for longer in a country with stark population differences between the cities and so-called ‘Empty Spain’, with rural communities and elderly people bearing the brunt of it. 

 

Caixabank laid off almost 6,500 workers in the first sixth months of 2021. Photo: ANDER GILLENEA/AFP

Just this month, a 78-year-old Valencian man has than collected 400,000+ signatures in an online petition calling for Spanish banks to offer face-to-face customer service that’s “humane” to elderly people, spurring the Bank of Spain and even Spain’s Prime Minister Pedro Sánchez to publicly say they would address the problem.

READ MORE: ‘I’m old, not stupid’ – How one Spanish senior is demanding face-to-face bank service

It’s worth noting that between 2008 and 2019, Spain had the highest number of branch closures and bank job cuts in Europe, with 48 percent of its branches shuttered compared with a bloc-wide average of 31 percent.

Below is more detailed information on how Santander and BBVA, Spain’s two biggest banks, have reported their huge profits in 2021.

Santander

Driven by a strong performance in the United States and Britain, the bank booked a net profit of €8.1 billion in 2021, close to a 12-year high. 

It was a huge improvement from 2020 when the pandemic hit and the bank suffered a net loss of €8.7 billion after it was forced to write down the value of several of its branches, particularly in the UK. It was also higher than 2019, when the bank posted a net profit of €6.5 billion.

Analysts from FactSet were expecting profits of €7.9 billion. 

“Our 2021 results demonstrate once again the value of our scale and presence across both developed and developing markets, with attributable profit 25 per cent higher than pre-COVID levels in 2019,” said chief executive Ana Botin in a statement.

Net banking income, the equivalent to turnover, also increased, reaching €33.4 billion, compared to €31.9 billion in 2020. This dynamic was made possible by a strong increase in customer numbers, with the group now counting almost 153 million customers worldwide. 

“We have added five million new customers in the last 12 months alone,” said Botin.

Santander performed particularly well in Europe and North America, with profits doubling in constant euros compared to 2020. In the UK, where Santander has a strong presence, current profit even “quadrupled” over the same period to €1.6 billion.

Last year’s net loss was the first in Banco Santander’s history, after having to revise downwards the value of several of its subsidiaries, notably in the UK, because of COVID.

The banking giant, which cut nearly 3,500 jobs at the end of 2020, in September announced an interim shareholder payout of €1.7 billion for its 2021 results. “In the coming weeks, we will announce additional compensation linked to the 2021 results,” it said.

BBVA

The group, which mainly operates in Spain but also in Latin America, Mexico and Turkey, posted profits of €4.65 billion ($5.25 billion), up from €1.3 billion a year earlier.

The result, which followed a solid fourth quarter with profits of €1.34 billion, was higher than expected, with FactSet analysts expecting a figure of €4.32 billion .

Excluding non-recurring items, such as the outcome of a restructuring plan launched last year, it generated profits of 5.07 billion euros in what was the highest figure “in 10 years”, the bank said in a statement.

In 2020, the Spanish bank saw its net profit tumble 63 percent as a result of asset depreciation and provisions taken against an increase in bad loans due to the economic fallout of the virus crisis.

“The economic recovery over the past year has brought with it a marked upturn in banking activity, mainly in the loan portfolio,” the bank explained, pointing to a reduction of the provisions put in place because of Covid.

In 2021, BBVA added a “record” 8.7 million new customers, largely due to the growth of its online activities. It now has 81.7 million customers worldwide.

The group’s net interest margins also rose 6.1 percent year-on-year to €14.7 billion, said the bank, which is undergoing a cost-cutting drive.

So far, it has axed 2,935 jobs and closed down 480 branches as the banking sector undergoes increasing digitalisation and fewer and fewer transactions are carried out over the counter.

At the end of 2020, BBVA sold its US unit to PNC Financial Services for nearly 10 billion euros and decided to reinvest some of the funds in the Turkish market.

In November, it launched a bid to take full control of its Turkish lending subsidiary Garanti, offering €2.25 billion ($2.6 billion) to buy the 50.15 percent stake it does not yet own.

The deal should be finalised in the first quarter of 2022.

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