In April 2015, many Spaniards sensed something was shifting as they watched the television news. An ashen-faced Rodrigo Rato was being escorted out of his Madrid home by police, to be questioned about his tax affairs.
The former IMF managing director would soon be released, but his legal problems have persisted, culminating in a conviction on Thursday that has confirmed the notion that the tide has turned against the country’s bankers.
Rato was given a 4½-year prison sentence for his role in a scheme that saw bank executives receive shady credit cards to use for personal expenses when he was chairman of the lender Bankia. The credit cards were not formally registered on the books of Bankia, which in 2012 was part-nationalised and received a €22 billion bailout.
In a case that became known as the "black" card scandal, Rato was found guilty of misappropriation of funds, along with Miguel Blesa, a former chairman of Caja Madrid, which had been absorbed into Bankia in 2010. Blesa received a six-year sentence.
Landmark case
A total of 65 former bank executives were convicted, in what is seen as a landmark case.
"Although there are other judicial cases involving savings banks in which the extent of the pillaging was worse, without a doubt, the episode of the 'black' credit cards will be seen as the symbol of an era of excess," noted El Mundo newspaper in an editorial.
Investigators found that a total of €12.5 million was spent on the cards by people linked to Caja Madrid and Bankia between 2003 and 2012.
Rato was chairman of Bankia between 2010 and 2012, during which time he spent a total of €99,000 on his card.
A breakdown of his spending showed that among his expenses were wine, jewellery and, on one occasion, €970 spent on shoes. Blesa, meanwhile, used his card to pay for an African safari.
The sentence confirms a dramatic fall from grace for Rato who, as minister of the economy in the government of José María Aznar between 1996 and 2004, was credited with overseeing Spain’s property-driven economic boom.
Abruptly resigning
He became IMF managing director in 2004, before abruptly resigning in 2007, citing personal reasons.
But his subsequent involvement in the Spanish banking sector has left his reputation in tatters.
"Spain has identified an executive to blame for the rise and fall of its banks," noted financial commentator Tom Buerkle, who nonetheless insisted that the country's financial problems went deeper than the activities of one man.
Thursday’s sentence is part of a legal backlash against those accused of abuses before and during Spain’s recent financial crisis.
"Things are changing, but we mustn't let our guard down, otherwise we'll go back to the situation we had before," Simona Levi, of the activist groups Xnet and 15MpaRato, told The Irish Times. Levi and her colleagues campaigned for Rato and other bankers to be brought to justice.
“Civil society has had to organise itself in order to watch over our institutions,” she said.
Levi cites the case of the former savings bank Novacaixagalicia as evidence of progress. In January, five of its former senior executives were imprisoned on two-year sentences for enriching themselves while bankrupting the bank. It was the first time bankers had gone to jail for crimes linked to the recent banking crisis.
On trial
Around 300 former bankers are currently either under investigation or on trial, according to news website El Economista. In one of these cases, Narcís Serra, a former minister of defence and chairman of the lender Caixa Catalunya, is due to be tried for raising board members' wages in 2010 while laying off 1,600 staff as the bank suffered losses that would require a €1.3 billion bailout.
Caixa Catalunya, Novacaixagalicia and Caja Madrid were all examples of cajas or caixas – regional savings banks. Dozens of these highly regulated, low-risk local lenders operated across Spain for much of the 20th century, each restricting their activities to one geographical area.
However, as Spain’s economy opened up after the death of dictator Francisco Franco in 1975, regulation was loosened and the cajas broadened their activities and took more risks. They also became vulnerable to political influence, with local mayors and regional leaders placing cronies on their boards.
During the property-based boom promoted by Rato when he was minister for the economy, many cajas funded new housing and costly white elephants. When the economic crisis hit, with Spain requiring a €41 billion EU rescue, the effect on the cajas was devastating.
Excess
Bankia, the result of a fusion of seven such lenders and Spain’s fourth-biggest bank, became the paradigm of savings-bank excess, due to its size and the scale of its problems.
In a case separate from the credit card trial, Rato is also being investigated for allegedly misleading authorities ahead of Bankia’s disastrous public listing in 2011. Last year, the bank agreed to pay back €1.5 billion to 200,000 small investors who lost money in the listing.
That probe is also examining the role of Spain's public institutions. Three senior Bank of Spain officials resigned last week after they were identified as targets of the Bankia listing investigation. Former Bank of Spain chairman Miguel Ángel Fernández Ordóñez and former head of the CNMV stock market watchdog Julio Segura are also being investigated.
The content of internal emails in which Bank of Spain inspectors warned their superiors about the imminent Bankia listing helped persuade the high court to probe the central bank’s role in the fiasco.
‘Lack of viability’
The emails, the court said, highlighted “the resounding information that the leadership of the Bank of Spain received, in advance, about the group’s lack of viability and the falsity of the results that it presented”.
Half a decade on from the financial crisis which reshaped the banking sector and impoverished many Spaniards, parties have finally agreed to form a parliamentary committee on the issue. Alberto Garzón, of the leftist Unidos Podemos coalition, said it is necessary “in order to put a name and a face to the people who were responsible for the economic crisis”.
Rato is likely to remain the most high-profile and reviled such figure. But the ranks of those blamed for Spain’s financial crisis are rapidly swelling.
