Another house of cards

As successive details come to light about the economic and financial deterioration of the Spanish holding company Nueva Rumasa, it is becoming ever-more clear that José María Ruiz-Mateos and his family had constructed a corporate group along the same blighted lines that in 1983 caused the old Rumasa to be expropriated to prevent worse harm to small shareholders and employees.

The collapse of Nueva Rumasa is something more than a hypothesis; the defaulting credits of the group already amount to 161 million euros, or 22.6 percent of the total loans it has been granted. Ruin stalks the corporate group implacably: suppliers are responding to non-payment by cutting off the supply of raw materials, which in turn threatens production plants with closure, and minimizes the possibility of recovering income and cash flow.

But the crisis of Nueva Rumasa is not just one more case of momentary difficulties caused by the economic recession. The old Rumasa of 1983 dangerously contravened the norms of prudent financial conduct and management. Ruiz-Mateos sustained a shell structure by means of practices tantamount to financial fraud (promissory notes and calls for cash injections in exchange for high-interest remunerations, utilized to pay debts coming due, a system not far different from the so-called pyramid fraud), and Nueva Rumasa is founded on the same flawed principle. The only difference between the two is that the group that is now tottering is not connected to a bank structure. But the role of the credit-granting entities has been played in this case by the dairy company Clesa, the largest company in the group.

It is hard to understand how the captain of a corporate and financial shipwreck of the magnitude of the old Rumasa has been able to obtain bank financing to once again build a house of cards which now threatens to collapse, sweeping away more than 9,000 jobs with it; nor is it easy to imagine why some investors have accepted his promissory notes and calls for capital injections, as if the precedent of 1983 did not exist.

Neither financial entities nor private investors can claim that they were not warned, by the National Securities Commission (CNMV) and by the ostentatious clowning (memorable public appearances in a superman suit) of an infuriated promoter. Uncollected debts and unrecovered money will be the price they pay for their negligence.

But while the future of the group is decided, it is indispensable that the courts investigate the structure of Nueva Rumasa and clarify, as far as possible, the tangled network of interests, transfers, and cross-lending that contaminates the 160 companies of the group. The responsibility for this impending bankruptcy belongs to Ruiz-Mateos and his family; the courts must see to it that these responsibilities are enforced. It is likely too, that the entrepreneurial superman will once again give free rein to his paranoid visions (conspiracies by banks and perceived political pressure); no one should believe them. The financial catastrophe of the old Rumasa ought to be a sufficient vaccine against such grotesque smokescreens.