Post date: Jul 22, 2012 3:53:1 PM
A Spanish court will begin its investigation of former IMF managing director Rodrigo Rato on Monday (July 23) in connection with the collapse of Spanish bank Bankia which he headed.
MADRID, SPAIN (JULY 2011) (REUTERS) - Spain's court will launch on Monday (July 23) a judicial investigation into several Bankia executives including Rodrigo Rato, formerly the head of of the International Monetary Fund (IMF) and Spain's finance minister, intor their roles during the fall of Spanish bank Bankia.
Bankia was nationalised in May and became the biggest-ever failed Spanish lender. Bailing it out could cost as much as 23.5 billion euros ($29 billion).
The case mirrors many of Spain's problems - a weak banking sector plagued by huge losses incurred during the property burst, a bailout that will lead to more austerity measures for Spain and its people, and the collusion of interests between politicians and big businesses.
Rato and his colleagues are accused of fraud, price-fixing and falsifying accounts in connection of their role during the fall of Bankia.
Once a powerful politician of the ruling conservative People's Party, Rato was named the head of regional savings bank Caja Madrid in 2010, ending an 18-month battle between PP factions over control of the lender. After Caja Madrid was merged with six other savings banks to create Bankia, Rato went on to lead the new institution.
Rato led the bank when it went public last year.
The bank completed a stock-market listing in July, 2011, as part of an effort by Spain to overhaul its financial system by forcing unlisted banks to recapitalise by raising private capital.
The court will consider two requests introduced by the indignant movement '15M' - a reference to May 15, 2011 when protesters started gathering in Madrid's central square Puerta del Sol - and the opposition party UPyD.
One of the reasons Rato is unpopular now is because Bankia aggressively sold shares through its huge branch network around Spain. More than 400,000 small investors, many of them elderly, bought shares that later lost almost all their value.
Some Madrid residents said they wanted the court case to explain what had happened at Bankia.
"I think it's very good. It will explain what took place inside that company, what has been done with the money that was there, and how they could release shares if they knew it would go bankrupt, how so many people were cheated with the money they lost and put an end to the career of those investors," said 55-year-old pensioner Pilar.
Spain's banks are blamed for the crisis in the euro zone's fourth biggest economy, after a rash of reckless lending during a 10-year property boom that collapsed in 2008.
Once seen as a possible prime minister and lauded by conservatives as the pragmatic architect of Spain's economic revival in the mid-1990s when he was the finance minister, Rato is now the focus of deep public anger directed at banks, which are at the core of Spain's economic crisis.
Rato openly aspired to lead the centre-right People's Party (PP) into the 2004 elections, but then-Prime Minister Jose Maria Aznar picked another longtime member of his cabinet, Rajoy, as his successor.
After the conservatives' 2004 defeat, Rato, a fluent English speaker, was named managing director of the IMF, where he remained until 2007 when he left citing personal reasons.
In June, Spain requested EU/IMF financial assistance for its banking sector. Euro zone finance ministers approved the terms of a loan of up to 100 billion euros ($123 billion) for Spain to recapitalise its banks on Friday (July 20).
But with several indebted autonomous regions, currently shut out of international markets, also demanding aid from Madrid, a full-scale bailout may be difficult to avoid.
Spanish people have been demonstrating regularly since Prime Minister Mariano Rajoy announced 65 billion euros in new spending cuts and tax hikes two weeks ago, as many think it is outrageous that banks are being bailed out whilst the people bare the brunt of the cuts.
Rato will be represented by his lawyers and will not appear in court on Monday.
However, he will have to answer questions in parliament later in the week regarding Bankia.