Looting laid bare

Little by little the scandalous looting of the Spanish savings banks, or cajas, is reaching the country’s courts with a view to finally clarifying what went on behind the massive bankruptcy of these lenders and to assign personal responsibility for it. The lawyers for the Caja de Ahorros del Mediterráneo (CAM) Foundation initially hired by the state Orderly Bank Restructuring Fund (FROB) have asked for prison sentences of six and 10 years for two former CAM directors who have been accused of misappropriation and criminal mismanagement. High Court Judge Ismael Moreno has also detected indications of criminal acts allegedly committed by four former directors of the Galician savings bank Novacaixagalicia. In the case of CAM, the official suspects boosted the expenses they received tenfold through corporate dodges, while in the case of Novacaixagalicia we are dealing with inflated payoffs that escaped control.

This shows that the savings banks that collapsed and were propped up with taxpayers’ money were looted using a number of different fraudulent techniques. In the case of CAM, the core of the judicial investigation centers on loans worth some 160 million euros granted to the company Valfensal, in which one of the former directors being prosecuted for breach of trust and fraudulent management had an interest.

Changing the law

It is to be hoped that the judges concerned will get to the bottom of these cases of looting, for which political parties that encouraged them and overseers who looked the other way are also responsible. However, these cajas were taken over by the FROB between 2011 and 2012 and more than a year passed before the judicial machinery got going on the most important cases. It is old hat to say so, but the delay in bringing these wrongdoings to justice works in favor of the alleged perpetrators and against those who suffered the consequences, whether CAM and Novacaixagalicia themselves, or their clients who were mis-sold illiquid preferred shares.

The court investigation should focus not only on what clearly constitutes illicit behavior, such as criminal mismanagement and fraud, but also on the high-risk operations that were the main reason the regional cajas went under. There should be an attempt to understand fully the causes of these bankruptcies in order, if necessary, to amend the legislation and mete out appropriate punishment for banking malpractice.