Barely credible

This week saw former IMF chief Rodrigo Rato acquitted of one of his several alleged financial misdemeanours. The criminal division of Spain's High Court ruled that Rato - who served as Spain's Economy minister between 1996 and 2004, in the conservative government of José María Aznar - was not guilty of false accounting but of misleading investors about the state of Bankia's finances prior to its Initial Public Offering (IPO) in 2011. It's extremely hard to believe, though, that Bankia's downfall was just an enormous accident, and in no way brought about by the greed and/or incompetence of its top executives.

In a ruling that will surely (and hopefully) be appealed, the Court found that the pre-IPO prospectus offered to potential investors in 2011 contained "ample and accurate information" about Bankia's balance sheet. Yet despite its claims to shareholders that it had made a profit of €309 million, a later reassessment of the bank's health revealed that it had actually lost €3 billion in 2011. Share prices fell from €3.75 to €1 and the bank received a state bailout of €22 billion in 2012 to prevent its total collapse.

It was for this reason that Spain's Supreme Court ruled in favour of two Bankia shareholders in early 2016, ordering the bank to pay back the sums they had invested (€9,997 and €20,868, respectively). The Court also found that the IPO prospectus had contained "serious inaccuracies" about Bankia's financial health at the time.

That Spain's two highest courts have reached completely opposite opinions about the same document is puzzling in itself. It might be more understandable if the brochure was fiendishly complicated and packed with specialist vocabulary, or liable to wildly differing interpretations. But a prospectus written for the ordinary investor should have presented information about the bank's finances clearly and accurately. Why, then, is there disagreement about the extent to which it corresponded with the actual state of Bankia's balance sheet? Who or what obscured the difference between fake profit and real loss, and how were so many people convinced into giving their savings to a bank in such dire straits?

Rato has always maintained that Bankia's supervisors, most importantly the Bank of Spain, knew about everything that was going on while he was chairman between 2010 and 2012. But none of the supervising bodies knew (or knew but didn't do anything) about the prevalence of "black" credit cards within the institution, which Rato and 64 other executives were said to have spent around €15 million on between 2003 and 2012, and in connection with which the former IMF boss is serving a four-and-a-half year prison sentence.

It's entirely plausible that dodgy or careless accounting prior to the ill-fated IPO was just another practice of which Bankia's supervisors had no knowledge.