Novacaixagalicia chairman throws in the towel under court pressure

The chairman of Novacaixagalicia, one of several Spanish lenders that have been nationalized due to fatally flawed management, has finally resigned after holding on to his post despite mounting pressure against him.

Julio Fernández Gayoso, 80, is stepping down after the High Court admitted a lawsuit against him and four former bank executives on charges of concealing their generous severance packages from the Bank of Spain.

Guillermo Alonso Jaudenes, the vice-chairman, will be the acting chairman until the entity is fully transformed into a foundation.

Novacaixagalicia is the result of a merger of two Galician savings banks, Caixa Galicia and Caixanova, in December 2010.

The attorney’s office wants the accused to return 7.8 million euros in compensation money, of which 5.5 million went to one man, Javier García de Paredes, the former deputy director. The complaint holds that right after the agreement to merge Caixa Galicia and Caixanova on May 11, 2010 and the first request for financial support from the state’s Orderly Bank Restructuring Fund, the executives got together to draft and carry out “a preconceived plan to prepare their foreseeable future departure” from the bank. The five defendants allegedly agreed to modify their executive contracts in order to introduce new early retirement clauses and future bonuses ahead of nationalization by the Bank of Spain.

The scandal affected Julio Fernández Gayoso, who had led Caixanova for 40 years. The accusation believes that he allowed these changes to the contracts while “fully aware of the extremely difficult economic situation that the lender was going through.” The biggest loser was the state, which had to inject close to 3.7 billion euros into a group that was ultimately nationalized anyway.

After the state intervention, an auditing firm called BDO concluded that Novacaixagalicia’s accounting books did not reflect the “true” situation and three other companies valued it at 188 million euros, the attorney’s complaint explains.

Meanwhile, the entire board of Banco Financiero y de Ahorros (BFA), the parent company of Bankia, resigned on Wednesday after it emerged that the banking group has a negative net worth of over 13 billion euros. The new chairman, José Ignacio Goirigolzarri, reportedly told the 17 members: “Would you rather resign or be dismissed?” at a meeting that was described as very tense.

Despite the recent departure of Bankia chief Rodrigo Rato and board member Angel Acebes, two major political figures within the Popular Party (PP), the list of board members still included a few well-known names, such as Mercedes de la Merced, a former member of Madrid city government, and Ricardo Romero de Tejada y Picatoste, a former mayor of Majadahonda and secretary general of the Madrid PP who was involved in several scandals in the past.

The meltdown of Spain’s cajas de ahorros, which were traditionally controlled by regional politicians more interested in securing funds for their projects than in ensuring proper bank management, illustrates how things were run for decades: executives who thought they were unaccountable for their decisions, board members who accepted their expense checks and looked the other way, news outlets that asked no questions because they depended on advertising revenues and politicians who didn’t care as long as the cajas provided them with funds as necessary. Add to that a good dose of ambition, a notable