Too big to fail? The (in)famous story of a Spanish bank
Seven years after the creation of one of Spain’s largest and most problematic banks, advanced Liberal Arts students discuss the case.
Below the Surface
Bankia is a Spanish bank founded in December 2010, in the middle of a restructuring process of the financial system, which took place in Spain because of the financial and economic global crisis. In 2010, Caja Madrid, one of the biggest saving Banks in Spain, merged with a series of smaller savings banks to become what is nowadays known as Bankia. Caja Madrid’s former president was Miguel Blesa, who actively took part in the Bankia scandal (S.A., 2017). In other words, we are talking about a financial institution that arises from the merge of seven Spanish saving banks, with Rodrigo Rato as chairman. A few years before, he was managing director of the IMF and Spain’s finance minister. A year later, on 20 July 2011, Bankia started trading on the Spanish stock market, giving the possibility to invest a minimum of 1000 euros and a maximum of 250.000 euros, making the promise to those who acquire more than 1000 shares to be exempt from bank charges for the use of cards or account maintenance (Expansión, 2017). At that time, Bankia had 12.000 million clients and 26.000 workers.
Banking on Bankia?
The purpose of this article is to discuss the financial and regulatory implications of the Bankia scandal, and what can be done to prevent the same thing recurring in the future.
Bankia case takes place in Spain, a few years after the financial crisis of 2008, which hit financial markets internationally. Bankia is a company that arises in the middle of a financial restructuration from the merger of Caja Madrid, a large bank, with other six saving banks in 2010. Few months after its flotation, in 2011, it is disclosed that what was shown as 304.7 million euros net profit was in fact a 2,979 million losses. In addition, some high executives are using money from the bank to pay their own expenses through what is called “black cards”. The total amount of the misappropriation equals 15.5 million euros. Due to a change in accounting criteria, the equity value in 2012 decreases in an 87.42%, from 8554 to 1076 million euros (Climent and Pavía, 2015). Rodrigo Rato, the president of the bank, is removed from his position and the Spanish Government places another president. The bank starts a restructuration process but the consequences will be catastrophic.
A Scandal That Shocked The World
Our society needs to take more advantage of certain lawsuits and prosecutions of companies; use them as examples to avoid further damage. What this company did was a crime of such magnitude that it should have prompted the regulators to enforce more care while investigating thriving businesses and any new products being introduced to the market on a regular basis.
Every little matters: Tesco financial scandal in 2014
Tesco is the largest British supermarket chain and general merchandize retailer who was created in 1919 by Jack Cohen. However, in 2014 they had one of the biggest scandals in recent business history. The scandal involved an overvaluation of the company’s profits, a huge debt and the risk of losing the best assets for its coverage. This paper looks at why this all happened, what actions would prevent it from happening and what kind of punishment was (or should be) given for the fraud.
Ernst & Young’s Involvement with Lehman Brothers’ Downfall
24 September 2015
One of the largest investment companies in the world suddenly vanished, filing bankruptcy that impacted our world today. Lehman Brothers were at the top of the charts; or at least that is what was portrayed in the media. The white collar crime that lost hundreds of billions of dollars has been inexistent, but still an unforgettable tragedy that effected the lives of so many. The tragedy continues as cases come to their final decisions, including the involvement of Ernst & Young’s accounting team. Please click here to read the full article.
Rana Plaza, two years on
15 September 2015
The collapse of Rana Plaza on 24 April 2013 in Dhaka was one of the major collective crimes in the modern era due to human negligence, where 1,130 people died and many more were injured. The 8-story building, consisting of offices and mainly garment suppliers that produced for leading fast-fashion retailers, fell into pieces. The structure was known to be unsafe to inhabit industrial machines and thousands of laborers. This brings up the question of whether it was an ethical attempt to have these garments cheaply produced in such conditions, so that the Western world could enjoy fashion products at low costs. This article examines the ethical aspects of this event from two different viewpoints: respectively from a non-consequentialist and a consequentialist perspective. Please click here to read the full article.
The Libor saga continues
27 February 2014
As probes into Libor rates rigging continue, three former Barclays employees join the cohort of traders already convicted or in the docks. To date, the investigation has led to the firing of dozens and has cost banks almost $6bn in regulatory penalties. Three chief executives – Bob Diamond at Barclays, Piet Moerland at Rabobank and David Caplin at RP Martin – have lost their jobs. Last week, Bob Diamond’s former colleagues Jonathan Mathew, Peter Johnson, and Stylianos Contogoulas were charged by the Serious Fraud Office with conspiracy to defraud. Please click here for more information.
Forex, the new Libor?
17 February 2014
The ink hasn’t dried yet after Libor, that a new scandal has hit the global financial markets. This time, the alleged wrong-doing is manipulation of foreign exchange rates. Probes in a fast expanding global investigation indicate that traders in London and elsewhere may have regularly colluded to try and influence currencies’ market prices in order to maximise their gains. A number of banks, including UBS, Barclays, JP Morgan, HSBC and Citigroup, have suspended or fired more than twenty traders involved in these activities, both in London and in New York. The Bank of England itself has launched an inquiry into allegations that its officials endorsed sharing of information between traders in the Forex market. Please click here for more information on the Bank of England’s internal investigation. The Bank of England supports the FCA (Financial Conduct Authority), the UK’s financial watchdog, in its investigation into alleged Forex-rigging. For more details, please click here. Authorities in the US (where the Department of Justice has opened both criminal and antitrust investigations), Switzerland and Hong Kong continue to probe.
New criminal offence recommended by Parliamentary review on banking
19 June 2013
A Parliamentary Committee has published a 571-page review on the failings of British banking. The process, which started in Autumn last year, following the Libor scandal, focused on policy recommendations such as the introduction of a new criminal sanctions regime and a governance system which would require regulators’ approval of new senior executives to be appointed. The new criminal offence – reckless misconduct in the management of a bank – would allow top management in future bank collapses to be held to account. Please click here for the full article. The report is available online here.
LIBOR – was it a scandal? Commentary by John Waites, BSc (Econ), FCA
10 June 2013
LIBOR is rarely mentioned in the press without it being followed by the word “scandal”. What is LIBOR, and has it really caused a scandal? John Waites investigates. Please click here for the full article.
Energy supplier SSE fined £10.5m by Ofgem
12 April 2013
SSE, formerly known as Scottish and Southern Energy, has been fined £10.5m by the regulator Ofgem for mis-selling gas and electricity. SSE is one of Britain’s “big six” energy suppliers, and the fine is the largest ever imposed by Ofgem. Please click here for the full article.
HSBC fined for money laundering
5 March 2013
HSBC paid $4.2bn (£2.8bn) in fines for money-laundering ($1.9 billion) and mis-selling financial products in the UK ($2.3bn) in 2012. For the same period, the bank’s Chief Executive was awarded a near £2m annual bonus for his “strong leadership” in tackling the revelations that led to the US fine. Please click here for the full article.
RBS fined £390m for ‘criminal’ Libor fixing
6 February 2013
Royal Bank of Scotland (RBS) has been fined £390m ($610m) by UK and US authorities for its part in the Libor rate-fixing scandal. Please click here for the full article.
UK Banking Reform Bill and Chancellor’s speech
4 February 2013
Eight months after the Libor-rigging scandal first erupted in the British media, relating to activities that go back seven years*, the UK government introduces a Bill in the House of Commons, which is aimed at helping to make banks more resilient to shocks and failure, thereby protecting the public. The key proposals refer to separating everyday banking activities from investment banking ones, in order to protect deposits of individuals and businesses; prioritising depositors in case of bank insolvency; empowering the Government and regulators to enforce the new rules; and ensuring that banking industry, not the taxpayer, covers the costs of implementing these.
Please click here to read the full press notice from HM Treasury and access the full text of the Bill and related documents.
* According to a BBC timeline, there is evidence that Barclays tried to manipulate dollar and euro Libor back in early 2005
On the same day, George Osborne gave a speech at JP Morgan’s administration offices in Bournemouth, strongly encouraging banks to take responsibility for their actions and put an end to the culture of greed, corruption, and reckless risk-taking. Please click here to read a full summary of the speech.
The question is now, which stick will be more effective in cleaning up the banking sector – the Chancellor’s speech or a new law?
Hillsborough 23 years on – a Commentary by Celia Wells
15 October 2012
Please click here to download a commentary on the Hillsborough disaster, by Professor Celia Wells from the University of Bristol.
The truth about the Hillsborough disaster
12 September 2012
Twenty three years ago, 96 Liverpool fans died after a crush on overcrowded terraces at Sheffield Wednesday’s ground during the FA Cup semi-final. The Hillsborough Independent Panel, chaired by the bishop of Liverpool, James Jones, had inspected 450,000 documents generated by the police and all other bodies responsible, and delivered a 395-page report indicting official failings and vindicating the victims and football supporters. It confirms the police’s constant blame-shifting over these long 23 years since the disaster, and it reveals the depth of what the families call a cover-up, in particular the deliberate, relentless South Yorkshire police campaign to avoid its own responsibilities and craft the false case against the supporters, was still startling. The attorney general, Dominic Grieve, is now to consider whether to make an application to the high court for the inquest verdict of accidental death to be quashed and a new inquest held. Please click here for the full article.
Victims’ families, as well as current police chiefs and politicians, are now calling for urgent action on the report; this should, in many people’s view, amount to a criminal investigation into the police handling of the 1989 Hillsborough football disaster. For further details please click here.
HSBC in settlement talks over money laundering
25 August 2012
After a US Senate investigation has concluded that HSBC, Europe’s largest bank, ignored warning signs that its global operations were being used by money launderers and potential terrorists (see our “HSBC and SCB in money-laundering scandal” post in July-August), HSBC is now in talks to settle the matter. HSBC handled so-called U-turn transactions through U.S. financial institutions that involved funds from Iran to non-U.S. banks, altering its transaction records to obscure information about its clients, according to U.S. Senate testimony in July. If paid, the $700 million set aside by the bank would constitute the largest U.S. settlement reached over such allegations. Following a long list of settlements by ING, ABN Amro, Barclays, Lloyds, Credit Suisse, and other banks’ involvement in similar investigations (Deutsche Bank, RBS, Credit Agricole and BNP Paribas), one can only reiterate the same obvious question – when will we see more serious sanctions for such criminal practices, than mere monetary fines? When will individual bankers be held criminally responsible? Please click here for the full article.
Seven banks to be questioned in the US over the Libor scandal
16 August 2012
HSBC, Royal Bank of Scotland, Barclays, Citigroup, Deutsche Bank, J P Morgan and UBS have been summoned by attorneys general of New York and Connecticut for alleged manipulation of the Libor inter-bank lending rate. The US authorities will see whether supporting documents and testimony provide sufficient evidence for a criminal prosecution. Please click here for the full article.
Standard Chartered settlement
15 August 2012
The global banking group agreed to pay a $340m with New York’s bank regulator over transactions linked to Iran. Please click here for the full article.
US Justice Department not to prosecute Goldman Sachs
10 August 2012
Washington – the Justice Department announced its decision not to prosecute Goldman Sachs Group for its subprime mortgage trades. According to Carl Levin, the Senator who asked for a criminal investigation of the firm two years ago, the decision resulted from either “weak laws or weak enforcement”. Indeed the Justice Department’s statement on Thursday said that “the burden of proof to bring a criminal case could not be met based on the law and facts as they exist at this time”. This only highlights the need for stiffer Wall Street regulations, as envisaged under the new Dodd-Frank financial reform laws. Please click here for the full article.
HSBC and SCB in money-laundering scandal
July – August 2012
After Barclays was fined £290m in June for having attempted to manipulate the Libor rate, and after the trading debacle at JP Morgan, which so far cost the bank $5.8bn (£3.7bn), two other banking giants are in the spotlight for all the wrong reasons. HSBC has been fined $27.5m (£17.7m) by Mexican regulators for failure to comply with money-laundering regulations. The fine comes a week after HSBC’s chief compliance officer resigned over the allegations. Mexican drug money had been allowed to pass through the bank. Please click here for the full article.
But Mexico was not the exception. According to a US Senate report, other HSBC subsidiaries moved money from Iran, Syria and other countries on US sanctions lists, and helped a Saudi bank linked to al-Qaida to shift money to the US. Please click here for the full article.
Ten days later, New York State Department of Financial Services accused Standard Chartered Bank of breaking American sanctions by concealing some $250bn of transactions with Iran.
What an ironic twist of fate that all this loss of respect for the City’s ancient charters happens at the same time as success seems to grow during the London-based Olympics!
Thalidomide drug distributor settles case in Australia
18 July 2012
Diageo, distributors of the anti-nausea drug thalidomide in Australia in the 1950s and 1960s, have agreed to pay a multi-million dollar settlement to a woman who was born without legs or arms after her mother took the medication. The settlement represents a major milestone for Australian thalidomide victims who will also be entitled to make a claim. Please click here for the full article.
Dispute continues about the high-level corruption among Bangladeshi government regarding the construction of Padma bridge
13 July 2012
Last month, the World Bank cancelled its $1.2 billion credit in support the Padma Multipurpose Bridge project in Bangladesh, due to the failure of the Bangladeshi government to investigate alleged corruption on the part of the Canadian company officials who are being prosecuted in Canada. The divergence of views between the World Bank and the Bangladeshi government continues. , click here. Please click here for an in-depth analysis.
FBI should investigate potential offense under the Foreign Corrupt Practices Act
10 July 2012
According to a senior US corruption lawyer, there is enough evidence to trigger an FBI investigation to determine whether a US company, which won a contract to assist the Bangladesh government in launching the country’s first space satellite, had committed offences under the Foreign Corrupt Practices Act.
SFO to investigate wider market, not just Barclays
7 July 2012
The Serious Fraud Office announced on Friday that it had begun a formal investigation into attempts to fix the Libor rate. The investigation is understood to be into the wider market and not just Barclays. Please click here for the full article.
Tunisia: The complicated face of anti-corruption efforts
6 July 2012
In Tunisia – where democratization has gone relatively well thus far — the Deputy Prime Minister for Administrative Reform resigned on 30 June 2012. Mohammed Abbou, a member of one of the two smaller parties in the tripartite governing coalition, explained at a press conference that he needed more authority to examine corruption in the country.
Australia: Current economic environment favours transnational criminals
15 June 2012
Thanks to the weak economy, governments and criminal groups around the world are increasingly partners in crime. In a mafia state, high government officials actually become integral players in, or leaders of, criminal enterprises, and the defence and promotion of those enterprises’ businesses become official priorities. In countries such as Bulgaria, Guinea-Bissau, Montenegro, Burma, Ukraine and Venezuela, the national interest and the interests of organised crime are now inextricably intertwined. Please click here for the full article, Wages of Sin on the Rise, in the Australian Financial Review. Please note that in order to read the article, you have to subscribe to the Financial Review.
News Corporation withdraws bid for BSkyB
13 July 2011
Murdoch’s NewsCorp has announced that it is dropping its planned bid to take full ownership of satellite broad-caster BSkyB. This humiliating move follows a scandal over phone hacking at News Corp’s UK newspaper group. Please click here for the full article.
Sentencing in the Concorde trial
7 December 2010
The judge decided that Continental was responsible for the disaster and the company was fined €200,000 and €1m in damages. Taylor was given a 15-month suspended prison sentence for fabricating the titanium strip, which did not meet industry standards. Please click here for the full article.
Network Rail and Jarvis Rail to be prosecuted over the Potters Bar crash
10 November 2010
Rail regulators began criminal proceedings against the two companies yesterday, eight and a half years after the train crash took place killing seven people and injuring more than 70. The Office of Rail Regulation identified serious health and safety breaches by the two companies. If found guilty, they could face unlimited fines. Please click here for the full article.
26 October 2010: GlaxoSmithKlein to pay $750 million for sale of bad products
The British drug company agreed to pay this to settle criminal and civil complaints that they had sold contaminated baby ointment and an ineffective antidepressant. Click here to read the full article.
Oil company to pay nearly $23 million penalty for cheating the US government in royalty case
20 September 2010
Kerr-McGee Oil and Gas was ordered to pay treble damages, or triple the $7.5 million that a jury said in 2007 the company was liable for, because of the false royalty claims it submitted to the federal government. The fine includes $5.7 million payable to the auditor who uncovered the problem. Please click here for the full article.
US judges complain about government’s deals with banks
23 August 2010
Two judges (Emmet G. Sullivan and Ellen Segal Huvelle) of Federal District Court chewed out federal prosecutors at hearings in Washington last week for a proposed settlement with Barclays and Citigroup, respectively. The scoldings from the bench are a striking departure from a long tradition of judicial deference to settlements formulated by federal agencies, reflecting broad disenchantment not just with Wall Street, but with its government overseers as well. Please click here for the full article.
CPS considers manslaughter charge over the Potters Bar rail crash eight years ago
31 July 2010
Passengers still face risks to their safety on the country’s rail network, a coroner has said, as an inquest jury blamed points failure for the deaths of seven people at Potters Bar eight years ago. The warning came as the official rail regulator said it would reopen the investigation into whether criminal proceedings could be brought in relation to the crash in Hertfordshire in May 2002.
Trafigura fined €1m for illegally exporting toxic waste to Africa
23 July 2010
The oil company Trafigura has been sentenced to pay £840,000 for causing the environmental disaster in which 30,000 Africans became ill when the toxic waste was dumped in Ivory Coast. Please click here for the full article.
US Congress passes Financial Reform Bill
16 July 2010
The US Congress gave the final approval to an optimistic financial regulations bill named after Dodd and Frank, who ushered it through the House. The 2,319-page bill establishes an independent consumer bureau within the Federal Reserve to protect borrowers against abuses in mortgage, credit card and some other types of lending. The legislation also gives the gov-ernment new power to seize and shut down large, troubled financial companies and sets up a council of federal regulators to watch for threats to the financial system. Under the new rules, the vast market for derivatives, which helped fuel the crisis, will be subject to government oversight. Please click here for the full article.
Companies responsible for the 2005 Buncefield oil depot explosion sentenced to pay over £9 million in fines and costs
16 July 2010
The five companies are Total, Hertfordshire Oil Storage Ltd, British Pipeline Agency Ltd, Motherwell Control Systems 2003 Ltd, and TAV Engineering Ltd. Please click here for the full article.
US Congress passes Financial Regulations Bill
15 July 2010
The US Senate approved the Bill, which is intended to mark the overhaul of the financial regulatory system. Please click here for the full article.
Goldman Sachs settles with the S.E.C. for $550 million
15 July 2010
The firm agreed to pay the US Government $550 million, to settle charges of securities fraud linked to mortgage investments. The firm did not admit liability. Please click here for the full article.
Three companies found guilty of health & safety offences in the 2005 Buncefield explosion
18 June 2010
Almost five years after the oil explosion that took place in Hertfordshire in December 2005, injuring 43 people and destroying homes and businesses, three companies – TAV Engineering Ltd, of Guildford, Surrey, Hertfordshire Oil Storage Limited, and Motherwell Control Systems, Liverpool – were convicted of health & safety breaches. Please click here for the full article. The verdict is expected to renew focus on oil safety – for details, please click here.
Increasing pressure to re-open the Bhopal criminal trials
7 June 2010
To listen to a BBC broadcast contrasting the way America treats the disaster in the Gulf of Mexico and the disaster at Bhopal (minute 10 onwards), please click here.
Eight managers sentenced to two years in prison and a £1,467 fine each for causing death by negligence in Bhopal, more than 25 years ago
7 June 2010
All those convicted are former Indian plant employees at Union Carbide, one of whom had already died. Warren Anderson, the American chairman of the parent company at the time of the disaster, was not mentioned at the verdict. Please click here for the full article.
US Government begins criminal investigation into the Gulf of Mexico oil spill
2 June 2010
“If we find evidence of illegal behaviour, we will be extremely forceful in our response” said Eric Holder, the US Attorney General. Please click here for the full article.
Launch of inquiry into the Potters Bar train crash
1 June 2010
An inquest into the death of the 7 people killed in the crash more than eight years ago is finally under way. Please click here for the full article.
Federal prosecutors have opened a criminal investigation into alleged fraud at Goldman Sachs
30 April 2010
The US attorney’s office in Manhattan has begun liaising with the securities and exchange commission, which brought civil charges against Goldman two weeks ago accusing the firm of misleading investors over a $1bn (£660m) derivatives deal masterminded by a London-based executive, Fabrice Tourre. Please click here for the full article. For an in-depth analysis of “What a criminal inquiry portends for Goldman”, please click here.
FSA launches investigation into Goldman Sachs in relation to recent SEC fraud allegations
20 April 2010
The City regulator has made it clear that it wants to interview top executives at the bank in London. Goldman Sachs say they “look forward to cooperating with the FSA”. Please click here for a video. To read more about the SEC charges, please click here.
Innospec ruling raises major questions for SFO approach to overseas corruption
19 April 2010
On the 26th March, in a highly significant judgement on the plea agreement made between the Serious Fraud Office and Innospec, Lord Justice Thomas ruled that the Director of the SFO “had no power to enter into the arrangements made and no such arrangements should be made again”. See the judgement and a brief comment on Corruption Watch website.
15 March 2010: Examiner Report on the bankruptcy of Lehman Brothers published
Two years after the bankruptcy of Lehman Brothers Holdings Inc., we learn through a 2,200-page report from Lehman’s bankruptcy examiner, Anton R. Valukas, that the firm was taking a creative approach with its valuations and accounting. The full report can be accessed here. Click here to read the full article.
BAE has pleaded guilty to the charge of having misled the Congress
5 February 2010
The BAE admitted having ‘knowingly and wilfully’ misled the US Government by failing to honour a pledge that it would be rigorous in ensuring that no payments would be made to officials of governments when trying to win business from those governments. The BAE will pay a fine of $400m (£250m), just over 10% of the company’s profit in the year prior to the conviction. Please click here for the full article.
Concorde crash trial to open in France
2 February 2010
Continental Airlines and 5 individuals will go on trial over the July 2000 Concorde crash. Details about the crash are available on the BBC News website. Please click here for the full article.
US Supreme Court decision on corporate campaign contributions.
21 January 2010
The Supreme Court decided there was no basis for allowing the Government to limit corporate and union independent contributions to electoral campaigns. Please click here for the Court’s decision..