Looting the savings banks

The legal action filed by the Anti-corruption Prosecutor’s Office against five executives of Novacaixagalicia, the bank resulting from the merger of the various Galician cajas (publicly administered regional savings banks), is a laudable decision that ought to be extended to other banks where there are clear signs of abusive remunerations, and of salaries and bonuses uncontrolled by the board.

The action is grounded on the presumed existence of a crime of undue appropriation, committed by the executives Pego, Rodríguez Estrada, Gorriarán and García de Paredes, with the cooperation of the banking group’s president, Fernández Gayoso, in which variable remunerations are converted into fixed ones without notifying the Board of Administration or the Bank of Spain. If the Prosecutor’s Office proves the accusations, the accused may face charges of dishonest administration and undue appropriation.

As in the case of the Caja del Mediterráneo (CAM), Novacaixagalicia constitutes a deplorable example of the pillaging on the part of executives whose incompetence is all too apparent in the ruinous situation of the banks they were running. In general, the abusive salaries are due to the absence of independent supervisory bodies. The executives simply had the power and opportunity to set their own remunerations, which were not approved by any sort of independent body. Indeed, supervisory commissions made up of genuinely independent members are very rare among Spain’s financial groups. It seems that the board of the Galician savings bank, like that of CAM, was not very active when it came to supervising the fixed or variable salaries of executives.

The above-mentioned cases are all the more irritating to public opinion because we are looking at cajas driven to bankruptcy by their managers, which now need public money to keep going. The case of Novacaixagalicia is aggravated by an undesirable merger, forced by political pressures from the regional government — which, in order to maintain a Galician financial institution for its own convenience and prestige, condemned Caixanova to shoulder the ruinous burden of Caixagalicia.

The systematic pillage in certain regional savings banks ought to teach us a lesson. The Bank of Spain should take steps in order to supervise remunerations in all the banks that now require public money to consolidate their balances, whether or not the FROB recapitalization fund has shareholdings in them. Brussels will help in this task.

But remunerations should also be regulated in private banks, even those not in need of public money. Salaries and extraordinary remunerations should have to be justified before a commission made up of independent members (and not the usual sort, who are mere hirelings of the higher management). Those payouts that are then authorized should be communicated clearly to the shareholders’ meeting by the boards for public consumption and evaluation.