Lambert here. Yves comments: “I have never heard of an IPO underwritten by Investment Banks You Heard Of and a clean accountant’s opinion by a Big Four firm refunding investors.”
By Don Quijones, editor at Wolf Street. Originally published at Wolf Street
It just doesn’t let up.
Obscured somewhat by the spectacular antics of Deutsche Bank, there appears to be another bailout of two of Spain’s franken-banks: mostly state-owned Bankia and wholly state-owned Banco Mare Nostrum (BMN). The news was released so quietly that even in Spain barely a living soul is aware it’s happening.
The Next Madcap Merger
The two banks, each the product of two madcap mergers of Spain’s most insolvent savings banks, will be merged into one giant entity that is expected to become Spain’s fourth biggest bank by assets. The merger has been on the cards for a number of months since Spain’s Economy Minister (and former Lehman Brothers advisor) Luis de Guindos began dropping hints that one of the first jobs of Spain’s next elected government would be to find a solution to BMN’s ownership issues. Now it’s being brought forward, probably because the chances of Spain having an elected government any time this year are fading by the hour.
For the moment, BMN is completely state-owned, after its four constituent state-owned parts — Caja Murcia, Caixa Penedès, Caja Granada y Sa Nostra — were rescued by Spain’s taxpayers and lumped together for the modest price of €1.6 billion in 2010. But by the end of this year all that was supposed to have changed. Plans had been drawn up for an IPO of the bank, but in the current environment, with banks falling like flies all over Europe, investors refuse to go near it.
Hence the merger, which despite only being in the “study stage,” has already received the blessing of Spain’s caretaker government, Spain’s central bank, and Standard & Poor’s, which has promised not to downgrade Bankia’s credit rating after it has absorbed BNM’s assets and liabilities. The merger will also no doubt enjoy the undivided support of the ECB: Mario Draghi, announced just a few days ago the urgent need for greater concentration and consolidation of Europe’s banking sector.
Also firmly behind the merger is a motley crew of European and U.S. investment banks. They include Morgan Stanley, which predicts that the deal could add as much as €300 million to Bankia’s profits by 2018 or 2019.
Such lofty promises have all been heard before — and by and large from the exact same institutional mouthpieces. Before Bankia’s public launch in 2011, Bankia’s management, led by former IMF Chairman Rodrigo Rato, reported in its IPO prospectus a healthy quarterly profit of €300 million. Deloitte, Bankia’s auditor and consultant responsible for formulating its accounts (no conflict of interest whatsoever), was happy to sign off on the accounts. So, too, was the Bank of Spain. As for the government, it was just happy something was being done to save its favorite bank, which many of its own former ministers — Rato included — had run into the ground.
It was all a blatant lie: in reality Bankia was bleeding losses (more than €3 billion) from every orifice. Within months of its IPO, the shares had lost virtually all their value. Cue the biggest taxpayer bailout of a banking entity in Spanish history with a total cost to date of €22.4 billion, of which €1.6 billion has been recovered, by a government that had repeatedly reassured the public that it would never spend “un centavo” on rescuing the country’s troubled banks.
A recent trial in Spain has established that the image projected by Bankia prior to its IPO “did not correspond with the bank’s true financial situation” and that without this carefully constructed “facade of solvency” conveyed in the IPO prospectus, the IPO would never have gone ahead. As of June 30 this year, the bank had returned €1.6 billion to 223,000 duped retail investors. Almost all of it was public money. And now a growing list of institutional investors, including Spanish corporations like Iberdrola, OHL and Melia, want their money back, too. almost all of which will be drained from the public coffers.
“Hiding Problems” (Again)
Now, Spain could be about to witness another major financial operation involving Bankia. And not everyone’s as excited about the prospect as Morgan Stanley. According to 15MpaRato, a Barcelona-based activist group that has single-handedly landed dozens of former members of Bankia’s board, including Rato, on trial, the overarching goal of the operation has more to do with “hiding the problems on BMN’s books” than creating value for either bank’s shareholders.
“Most of the value attributed to BMN does not come from the financial assets” on its books but from its state-guaranteed tax assets [we covered this mess in 2014], the activist group told the Spanish daily El Boletin. As such, the reason why the bank’s IPO didn’t happen was “quite simply because its accounts are not reliable.”
If the bank’s “assets” are deteriorating fast, it would help to explain why Spain’s caretaker government is now in a mad rush to merge the two publicly bailed-out banks. In other words, it wants to “make BMN’s impossible numbers disappear.”
If true — and given Bankia’s six-year history, one can be forgiven for expecting the worst — the chances are that there’s yet more pain ahead for Spain’s long-suffering taxpayers. By Don Quijones, Raging Bull-Shit.
Everyone is denying everything. Read… The Loophole for Deutsche Bank’s Bailout: Game almost Over?