A former senior executive at bailed-out Spanish bank Bankia is to receive a €14m (£11.2m) payoff in a move that will cause controversy beyond the country’s borders if Europe is asked to help rescue Spain’s banks.
As the government seeks to raise the €19bn needed by Bankia, the news that Aurelio Izquierdo would walk away with such a large payoff raised questions about what Spain’s troubled banks have been doing with their money.
Another former senior Bankia executive, Matías Amat, received €6.2m for taking early retirement, aged just 58, in September.
News of the payoffs came amid growing uproar over the multimillion euro deals handed out to executives at Spain’s cajas, or savings banks, during the boom years when they helped inflate a housing bubble that burst four years ago.
Many have since been forced out of the banks they ruined, taking millions more euros in payoffs.
The toxic real estate assets they left behind are at the root of growing worries that Spanish banks will need a European-funded bailout on top of the Bankia rescue.
Spanish government sources, who at the weekend said they would likely give Bankia government debt as collateral to raise €19bn from the European Central Bank, backtracked on Tuesday. Now they claim that, despite Spain’s high borrowing costs, the country can raise the money itself on the markets.
“There is a clear preference to tap the market. The other option is marginal,” a government source told Reuters.
Bankia’s parent company BFA on Monday reported a €3.3bn loss for 2011 – one hundred times larger than previously stated.
Bankia said on Tuesday that bailout money would not be used for the multimillion euro executive payoffs as the sums were already accounted for. In Izquierdo’s case, they said, the money was owed by one of the seven cajas that merged to form Bankia, and which remain shareholders, rather than by the new bank.
Izquierdo was the number two at Bancaja, the second largest of the cajas that were merged two years ago.
He went on to take a senior position at Bankia before leaving to run the Banco de Valencia, which has since had to be rescued. He then returned to Bancaja and will get the €14m when he leaves.
Bancaja brought large amounts of toxic real estate to the merger. Bankia’s parent company BFA now recognises €40bn of such assets.
Bancaja operated in eastern Valencia, a coastal region that became a byword for both voracious construction and political corruption.
With control of individual cajas in the hands of local politicians, their presidents were largely political appointees.
A study by economists Luis Garicano and Vicente Cuñat in 2009 found a close relationship between political caja bosses and bad loans. These increased by 50% where the president was a politician with no banking experience.
Bankia’s executive chairman until he was forced to resign three weeks ago was Rodrigo Rato, a former finance minister for the governing People’s party (PP) of prime minister Mariano Rajoy.
Matías was originally employed by Caja Madrid, the biggest of the seven savings banks – whose president was Rato.
Rato and his predecessor at Caja Madrid, Miguel Blesa, were named in a private writ lodged at a Madrid court house on Tuesday which blames the two men and other executives for the fall of Spain’s fourth largest bank.
Anti-corruption prosecutors are also reportedly investigating senior executives at other failed cajas.
PP-run Valencia is one of the Spain’s biggest regional government overspenders, contributing heavily to the national deficit. Its government has been handed junk status by credit ratings agencies.
Rajoy’s government is expected later this week to announce plans to issue bonds to fund regional governments like Valencia, adding further to the national debt.
Borrowing costs are near to euro-era records, however, amid worries about when Spain will recover from its second recession in three years and start cutting its 24% unemployment rate.
Retail sales fell 9.8% in the year to April, underlining the impact of government austerity measures.
Rajoy’s government, which came to power in December, has passed a law severely limiting executive pay at nationalised banks.
Giles Tremlett, The Guardian