Bankia management rejected that idea, these people said. Executivesargued that such a large deal would erode the value of the stakesowned by existing shareholders—namely, the cajas. Frustratedinvestment bankers noted that the executives still carried businesscards embossed with the logos of their local cajas, not Bankia. As investment bankers fanned out to drum up interest amonginstitutional investors in financial capitals around the world,they faced chilly receptions, according to people who worked on thedeal. Investors were uncomfortable with Bankia's exposure to riskySpanish real estate and were unwilling to put money into anySpanish institution.
Until shortly before the IPO, Bankia didn'teven have a chief executive and was instead helmed solely by achairman, Rodrigo de Rato, a former Spanish finance minister andIMF head. In mid-June, less than two weeks before the IPO, Mr. Rato flew fromMadrid to London to meet with prospective investors. During theflight, he received an unsettling message. One of the firmsadvising Bankia thought he should shelve the IPO due to the lack ofinterest, according to people familiar with the matter.
Mr. Rato spent much of the flight debating the pros and cons, thesepeople said. He decided to plow ahead, worried that canceling theIPO would send a dangerously destabilizing signal about the healthof not only Bankia but the entire Spanish banking sector. But Mr.
Rato and his advisers shifted tactics. Instead of focusingon the sophisticated international money managers that are theusual candidates to buy stock in newly listed companies, theyswitched their focus to Spaniards. Bankia and several other large Spanish retail banks peddled theshares to hundreds of thousands of their customers at €3.75apiece. Mr.
Rato and top Spanish government officials worked thephones with wealthy individuals and business leaders, urging themto buy shares personally and on behalf of their companies. IfBankia's offering failed, they warned, it could drag down theentire Spanish financial system. Bankia managed to raise only €3.1 billion. Less than 2% ofthe proceeds came from investors outside Spain, according to peoplefamiliar with the matter.
A couple of weeks later, the Europeancrisis intensified. Banks across Europe saw their shares battered.But Bankia's stock price remained fairly stable. Executives andSpanish officials interpreted that as a vote of confidence inBankia's strength. That rosy interpretation, some officials now concede, was flawed.It instead reflected the fact that Bankia's shares were largelyheld by retail investors who were slower than institutionalinvestors to react to the escalating crisis.
Through a spokeswoman, Ms. Salgado declined to comment. The Bank ofSpain's governor, in its annual report released Friday, listed theprogress made in financial sector cleanup since 2010, with 45savings banks merged into 11 and new rules on loss-absorbingbuffers, and said the worsening euro-area debt crisis was a reasonthe banks had needed additional funds. Through a spokesman, Mr.
Rato declined to comment. On Nov. 20, Spanish voters ousted their government, replacing thesocialists with the conservative People's Party. Incoming PrimeMinister Mariano Rajoy vowed to fix the country's banking system,promising to require banks to beef up their reserves to cover badloans. As weeks passed, top Spanish bank executives started fretting togovernment officials that Bankia's problems threatened to engulfthe country's entire banking sector.
In early February, Mr. Rajoy's government unveiled its bank plan.It would force banks to set aside an additional €50 billionof reserves. Banks that didn't have the money would be allowed toturn to the government bailout fund. The Bank of Spain's top regulator, Jose Maria Roldan, traveled toLondon and Asia in April trying to restore confidence in thecountry's financial sector.
He presented a 42-page slide show withthe theme that the Spanish government had taken the steps necessaryto address the banking sector's weakness. Mr. Roldan's last stop was in Tokyo on April 25. Later that sameday, the IMF delivered a severe blow to his pitch: a report warningthat 10 Spanish banks were in danger, singling out Bankia. By early May, panic was setting in.
Customers were withdrawingfunds from Bankia, worsening its health. The illness threatened to infect other Spanish companies. Investorstold senior bank executives in Madrid that they wouldn't put moneyinto any Spanish financial institutions until the governmentresolved the Bankia mess, according to people familiar with thematter. At a May 3 dinner in Barcelona's centuries-old Pedralbes Palace,European Central Bank President Mario Draghi told bankers andsenior government officials that he was deeply concerned aboutBankia, according to a person familiar with the matter.
The next day, the chairmen of three giant Spanishbanks—Santander, BBVA and La Caixa—met with FinanceMinister Luis de Guindos and delivered a similar message, accordingto people familiar with the meeting. They pushed him to quicklynationalize Bankia. On May 7, under government pressure, Mr. Rato tendered hisresignation as Bankia's chairman.
Days later, the governmentordered banks to come up with another €30 billion of reservesto absorb future losses. Seeking to get a handle on the true depth of Bankia's problems, thefinance ministry brought in a team to dive into its books. It foundmany of the bank's assets hadn't been marked down to reflect theirtrue values, according to people familiar with the procedure. In other cases, the bank had classified some loan portfolios assmall-business loans when they should have been labeled asreal-estate loans, these people said.
It was an importantdifference, because real-estate loans are more likely to have lostvalue. The potential losses quickly piled up. In the early hours of May25, the team settled on a final tally: €19 billion. Beforeannouncing the huge sum to the public, government officialsprivately acknowledged the possibility that the bailout's sizemight force the country to seek external financial help.
A week later, on May 30, Spain's borrowing costs neared recordhighs, with 10-year bond yields rising to 6.7%. The following week,Spain's budget minister conceded that the country, locked out ofinternational funding markets, might need to be rescued. Thatbecame a reality on Saturday. Bankia shares are now worth about€1 each—nearly 75% below their debut last summer. Margarita del Campo, a 59-year-old civil servant in Madrid, bought€2,000 worth of Bankia shares in the IPO.
As a longtime CajaMadrid customer, she says she trusted Bankia. Now her investmenthas shriveled to barely €500. "I used to believe in my bank,"she says, "but I don't trust in a single one right now." —Santiago Perez and David Román contributed to thisarticle. Write to Sara Schaefer Munoz at Sara.Schaefer-Munoz@wsj.com , David Enrich at david.enrich@wsj.com and Christopher Bjork at christopher.bjork@dowjones.com A version of this article appeared June 11, 2012, on page A1 in theU.S.
edition of The Wall Street Journal, with the headline:Madrid's Handling of Bankia Repeats a Pattern of Denial. I am a professional writer from Bag & Luggage Making Materials, which contains a great deal of information about pad printing machine , warn winch bumper, welcome to visit!
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