How Spain dumped a bad bank on the small investors..

The financial crisis moves on from one thing to the other. Here is a super story on how Bankia duped small investors into buying its IPO in 2011.

Bankia was formed via merger of seven regional (troubled) Cajas.

The troubles at Bankia are a stark reminder that Europe’s woes are rooted in large part in its banks. Formed in 2010 from the merger of seven unlisted savings banks, Bankia was meant to be a symbol of Madrid’s faith in its famously conservative financial system. Instead the bank’s predicament has forced Europe to give emergency aid to Spanish banks and pushed Spain closer to a bailout itself. As in Greece and Ireland, the banking crisis is inextricably linked to the sovereign crisis.

Many Spanish investors, hundreds of whom have joined law suits against the bank, now say Bankia deliberately overstated the value of its real estate assets to lure people into investing in its IPO. Close to 400,000 ordinary Spaniards who bought Bankia shares have seen their investments all but wiped out in the turmoil following its takeover by the Spanish state in May.

Smalltime investors say they were not properly warned of the risks; some say they felt pushed into buying shares in the bank even as institutional investors avoided the listing.

And of course as IPO was sold by top ranked i-bankers it looks like a case of coordinated duping:

Former Bankia executives, including Rato, have said that due procedures were followed and risks adequately disclosed. They point to a 403-page prospectus available on the website of the Spanish stock market regulator. External banking advisers including J.P. Morgan, Bank of America Merrill Lynch, Deutsche Bank, and UBS, did not publicly raise doubts about valuations, even if they were worried about the progress of the sale, according to investment bankers who worked on the deal. None of those banks would comment for this story.

But some Spanish politicians and many investors now believe the IPO was rigged. A small Spanish political party has forced Spain’s High Court to open an investigation into whether Rato and 32 other former board members of Bankia and its parent company BFA are guilty of fraud, price-fixing or falsifying accounts. At issue is whether the bank was honest about the value of assets on its books such as property and stakes in other companies, and transparent enough about the risks it, and therefore investors, faced, as required by Spanish law.

Financial sector woes keep getting more and more interesting…

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