Next Banking Scandal Explodes in Spain

Tyler Durden's picture

By Don Quijones, Spain & Mexico, editor at Wolf Street.

Next Banking Scandal Explodes in Spain

The last five years have been a bumper period for banking scams and scandals in crisis-ridden Spain. From Bankia’s doomed IPO in 2012 to the “misselling” of complex preferentes shares to “unsophisticated” retail bank customers, including children and Alzheimers sufferers, all of the scandals have had one thing in common: the banks have consistently and ruthlessly sacrificed the welfare and wealth of customers, investors, and taxpayers on the altar of short-term survival.

Some commentators claim that the problem of banking instability in Spain has been put to rest in recent times, thanks chiefly to a robust, debt-fueled recovery, a tepid resurgence of the real estate sector and the transfer of the most toxic assets from banks’ balance sheets to the festering balance sheets of the nation’s bad bank, Sareb. They could not be more wrong.

Despite the untold billions of euros of public funds lavished on “cleaning up” their balance sheets and the roughly €240 billion of provisions booked against bad debt since December 2007, the banks are just as weak and disaster-prone as they were four years ago.

And now, it seems a new scandal is in the works. Last month Spain’s sixth largest financial institution, Banco Popular, announced that it was urgently seeking to raise €2.5 billion in capital in a desperate bid to shore up its finances. The news triggered a sell-off that wiped out 33% of the bank’s market capitalization in just two days, before investor nerves were steadied somewhat by revelations that the bank had found 10 global mega banks as underwriters for its €2.5 billion rights issue, including Goldman Sachs, Morgan Stanley, Santander, Deutsche Bank and HSBC.

But in recent days the stock has once again begun to crumble following allegations that Popular is also doing some creative selling of its own. The Spanish investment group Blackbird claims that the bank is offering customers dirt-cheap loans or refinancing deals, at an interest rate of just 2.5%, as long as they use some of the funds to purchase the bank’s new shares.

“Popular is offering loans to its customers on the condition that they subscribe to the rights issue… and then deposit the €1.25 per share in their bank accounts,” asserts Marc Ribes, co-founder of BlackBird.

If Blackbird’s allegations are well-founded — and so far there’s been no official denial — Popular is in the process of taking the dark art of banking misdeeds to a whole new level. In the preferentes scandal, Spanish banks effectively plundered billions of euros of their customers’ savings to keep their balance sheets in tact, at least for a little while longer. That was bad enough. But now it seems that the already heavily debt-laden, loss-leading Popular is creating new debt for broke customers so that they can participate in the bank’s rights issue.

Such behavior is not just unethical; it’s illegal. Banks cannot lend customers money to buy the banks’ own shares. At least not in Spain.

The allegations against Popular have reached such a level that Elvira Rodríguez, president of Spain’s National Securities Market Commission (CNMV), was yesterday asked to comment on them. She declared that the CNMV “will be monitoring and asking for information from” Banco Popular about its forthcoming capital expansion. This should, in an ideal world, be a source of relief to investors. But this is not an ideal world and there is no source of relief — at least not from financial regulators, whose role is to guard the foxes as they eat the hens while telling the hens not to worry about the foxes.

In the last five years Spanish banks have been able to bend or break just about every rule in the book with not so much as a slap on the wrist from Spain’s two biggest financial regulators, the CNMV and Banco de España, both of whom have been accused of a raft of oversight failures in Bankia’s IPO.

The chances of the same two regulators suddenly taking an interest in the misdeeds of one of Spain’s biggest financial institutions are paper-thin. As for Spain’s caretaker government, it’s not hard to fathom where its loyalties lie, particularly in light of the fact that the governing People’s Party just received a €1.2 million loan from Banco Popular so that it could post bail for three former treasurers accused of operating a multi-decade slush fund to channel corporate kickbacks to senior party officials.

Meanwhile, Spain’s fourth biggest party, the center-right Cuidadanos financed its last election campaign with a €4 million loan from (yes, you guessed it…) Banco Popular.

With 10 of the world’s biggest and most deviant banks preparing the ground for Popular’s capital expansion while Spain’s regulators and government look the other way, it’s hard to shake the feeling that a trap is being laid. If the last five years are any indication, the chosen prey will be (in order of appearance) gullible customers, retail shareholders, and Spain’s unconsulted taxpayers. Once again, the wealth of the country will be redistributed from middle-class taxpayers, investors, savers, and pensioners to the executives and creditors of financial institutions.

As a former Barcelona-based banker told me a couple of days ago, “the banking sector — once the foundation of the economic system — is a disgrace; it has lost all sense of purpose, apart from sucking dry what little marrow remains of the productive economy.” By Don Quijones, Raging Bull-Shit

Things have gotten so bad in the Eurozone that even the staunchest eurocrats are beginning to express doubts, even European Parliament Chief Martin Schulz who’d warned over a possible “implosion of the EU.” But now, the eurocrats are not just falling into despondency and despair, they’re beginning to turn on each other.

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Haus-Targaryen's picture

So they're inboarding their own stock.  Clearly the sign of a healthy organization.

Looney's picture

 

They will keep creating “bad banks” to offload toxic assets until there ain’t no “good banks” left.

Looney

To Hell In A Handbasket's picture

No doubt the state will be forced to buy up these bad/worthless/toxic debts, then still owe the money to the central bank who borrowed them the money to bail out the bad banks, then will have to suffer austerity measures, while no Jewish banker goes to jail and the current bankers will still get to collect bonuses now, on future earnings for deals they have struck today. And so the ponzi scheme goes round and around, without any fucking reform what so fucking ever. This is the free market today my friends. 

38BWD22's picture

Oh great, another banking scandal, a perfect way to start my last day here.  Back tomorrow.

 

Super!  I look forward to seeing such surprises coming soon to US banks.  I can hardly wait.

NidStyles's picture

Where do I sign up? I want to become a Central Banker too!!!

T-NUTZ's picture

it's ok.  we can simply create a "super bad bank" to buy up all of the bad banks.

Make_Mine_A_Double's picture

I bet the Portugese get morning wood knowing their small local banks are being snapped up by the Spanish monoliths.

Don't worry - your live savings, pensions, etc. will be fine. They are in good hands and if nothing else you get those 10,000 shares of Bankia you didn't know you owned put in a nice frame for your great grandchildren (assuming any survive what's coming in Eurarabia..)

 

centerline's picture

I think I would rather have a spiderman towel.

Philo Beddoe's picture

Chinga tu madre, cabrones. 

38BWD22's picture

 

 

 

Esos pendejos me dan bastante colera tambien.

Philo Beddoe's picture

Todo el tiempo es la misma historia con ellos.  Que tu puedes hacer? Nada! 

38BWD22's picture

 

 

 

Poner billetes de $100 y moneditas de oro abajo del colchon?

squid's picture

Bullish!

 

Squid

Yukon Cornholius's picture

People just don't understand the math. It's math, ok? Just do the math and you'll see it's all ok. Oh wait, do they still teach math these days?

therover's picture

1 + 1 = whatever you want it to be.

38BWD22's picture

My brother told me when he was seven years old that the largest number in the world was "Eighty Munch".  Hmm, I thought, then I asked him if "Ninety Munch" was a larger number...?

 

No!  Eighty Munch is THE largest number.  OK, well that settled that.  Ah, yeah, my brother was a banker for a while...

Dr. Engali's picture

A banking scandal breaks out and regulators are no where to be seen? Shocking! Shocking I tell ya! 

jakesdad's picture

"NOBODY WANTED TO!  we were all making too much money..." - hank paulson

buzzsaw99's picture

all those bad loans will really help their book value. /s

SillySalesmanQuestion's picture

But those "stressed assets" will improve their balance sheet...

S/

Infield_Fly's picture
Infield_Fly (not verified) Jun 8, 2016 12:34 PM

Yes,but did they get the free box of golf balls with the bank logo embossed on each???

PontifexMaximus's picture

Nothing new, they already did that in Italy. Manus manum lavat, and in the end you are bust.

bluskyes's picture

The new GS corporate slogan: "Securitize the World"

conraddobler's picture

The way this works is ingenius.

You take a humans selfish proclivity towards depravity and dangle whatever carrot floats their boat at them until they take the bait and do horrendously corrupt things thus entraping themselves and doing your nefarious bidding at the same time.

They have sold their soul to the devil.

Now that the devil owns it they have your prance around and do all kinds of amazingly corrupt things and when it all splashes out into the light of day like a stinking warm pile of explosive diareaha then they faux pretend not to know you while wheeling your stunned body into the road precisely in line with the bus wheels and have the driver back back over you a few times for good measure.

It's perfect they completely destroy your life take payment of your soul and move on to the next ready and willing stooge.

Rakshas's picture

I can't stop laughing...... I don't know why this struck me so funny  I've just got this mental image of this modern day Laurel and Hardy skit running around in my head -bank stealing money from depositors then lending stolen money back to depositors so they can buy stock in the bank and pay the bank interest at a premium because investing in banks is highly risky......... did someone just pull thier lip over thier head and swallow themselves here??