Regulatory failure

The crisis at seafood processor Pescanova is unfolding into a case of possible financial crimes, surrounded by the company’s agonizing lack of liquidity. In the face of this, the National Securities Commission (CNMV) market watchdog needs to act more rapidly and forcefully. It is not just a case of the company failing to present its financial accounts in the stipulated way or suspicions of hidden debt, the size of which is growing by the hour to levels of three billion euros, nor for that matter tensions within its board of directors in the face of a financial storm the management team seems unable to weather. The issue here is that the chairman, Manuel Fernández de Sousa, sold seven percent of the company without informing either the regulator or Pescanova’s other shareholders, in an operation that has all the signs of a flight from catastrophe based on insider information.

The disaster at Pescanova is incredible because despite the magnitude of the problem there are no apparent institutional resources in the share of the company’s own board of directors and regulatory bodies such as the CNMV capable of stemming the situation and getting the company back on course. After more than 45 days of crisis, the full extent of the company’s hidden debts and the supposed irregularities committed by Fernández de Sousa to hide the parlous state of the company and his apparent move to safeguard part of his personal wealth are as yet unknown.

The CNMV has limited itself to requesting the company’s financial accounts time and time again — with very limited success. This is an indication of the extent of the powers of coercion of a regulator that should be feared by the management teams of companies.

Awash with rhetoric

While the situation continues to get worse both inside and outside the company — creditor bank HSBC has requested that Pescanova subsidiary Pesca Chile be declared bankrupt — the board of directors, whose job it is to ensure the company works well, does not appear to have sufficient strength to turn the situation around. We are awash with rhetoric about the importance of Spain’s image abroad but when it comes down to defending the prestige of the brand, it appears there is neither the means nor the will to do so.

What needs to be done is well known: ditch the chairman of the company, take on board the extent of the crisis and negotiate the survival of Pescanova with its creditor banks. The question is whether the will is there to do this, and who should organize the rescue in the midst of a hurricane.