Spain's national court probes Bankia IPO, names Rato suspect

Spain's national court Wednesday opened a criminal investigation into last year's stock market listing of Bankia SA, naming as suspects former chairman Rodrigo Rato and 32 other individuals who were board members running up to the bank's recent nationalization.

The probe into the dealings of the board of Spain's largest troubled bank was launched by investigating judge Fernando Andreu following a complaint by a small Spanish political party, Union, Progreso y Democracia, court documents showed. UPyD accuses Bankia, its parent company Banco Financiero y de Ahorros SA and the board members of both companies of fraud and misappropriation of funds in relation to last year's Bankia initial public offering. It also accuses the bank of falsifying its 2011 annual results.

More than 300,000 small investors, most of them clients of the bank, invested in Bankia in the IPO, allowing the bank to raise EUR3.1 billion.

Mr. Rato, a former head of the International Monetary Fund and Spain's deputy Prime Minister under a previous conservative government, is the highest profile executive embroiled in the probe. Other members of Spain's ruling Popular Party are also among the suspects, including former interior minister Angel Acebes and a deputy finance minister, Estanislao-Rodriguez-Ponga, who served under Mr. Rato.

A secretary to Mr. Acebes said he wasn't immediately available for comment. No one answered at the school of economics where Mr. Rodriguez-Ponga works.

In a court writ, judge Andreu said he plans to call on these suspects to testify, at a date yet to be announced. A spokesman for Mr. Rato didn't answer several telephone call attempts at his office in Madrid. Bankia had no comment on the probe.

Bankia's shares have plunged more than 75% since the listing in July last year.

UPyD claims that some of the data Bankia provided in the prospectus misled investors about the state of the bank's finances. In the document, UPyD said the sales material did warn of risks such as market volatility and the possibility of an economic slump, and of potential losses from the bank's real-estate exposure. However, it added that these cited risks are "mere anecdotes" compared with what happened in the months after the listing, such as the bailout in November last year of one of Bankia's units and the nationalization in late May of Bankia and its parent company.

"It's obvious," the document said, "that those responsible for creating and maintaining this fiction must respond."

Spain's government in late May agreed to pump EUR19 billion ($23.8 billion) into the troubled lender, making it the costliest bank rescue in the country's history.

However, the government's finances had been weakened by the country's economic downturn and it didn't have the cash needed to shore up Bankia's finances. It was eventually forced to ask the European Union for a bailout loan of as much as EUR100 billion to clean up its banks.

One of the suspects named in the investigation, Francisco Verdu, remains on the Bankia board. The other 32 were forced to resign shortly after Bankia was bailed out.

Mr. Verdu is Bankia's chief operating officer and was hired a few weeks before Bankia was listed. He was kept on as a senior executive when new managers took control of the bank.

A Bankia spokesman said Mr. Verdu declined to comment.

The court also named several high profile witnesses in the investigation, including former Bank of Spain governor Miguel Angel Fernandez Ordonez and the head of Spain's stock market supervisor.

This is the third Bankia-related lawsuit to result in a criminal probe but the first to specifically cite Mr. Rato and other board members. Miguel Bernard, a far-right activist behind the first Bankia lawsuit in May, said Wednesday he anticipates that all of the cases will be wrapped together into one in coming weeks, in accordance with Spain's usual practice.

Under Spanish law, anyone can file lawsuits in a case, even if they're not involved parties, which often leads to them being bundled together by judges. That means complex cases may be probed for months before the investigating judge decides whether to take the case to trial or dismiss it.

These developments come after Spain's state prosecutor's office last month launched an investigation into the legality of a seven-way merger of Spanish banks that created Bankia, shortly after the Spanish government moved to nationalize the ailing lender.

(Published by WSJ - July 4, 2012)