MADRID -- Spain's high court opened a criminal fraud investigation Wednesday into the conduct of 33 current and former executives at Bankia, the conglomerate of Spanish savings banks whose spectacular downfall forced Madrid to request a European bailout.
Bankia, the country’s fourth-largest bank but its biggest real-estate lender, was swamped by unpaid property loans left over from the housing bubble. Too big to fail, Bankia was nationalized by the government in May, using $24 billion in taxpayers' money. But the task proved too expensive, and Madrid was forced to request up to $125 billion in European aid.
The judicial probe names Rodrigo Rato, the former International Monetary Fund chief who recently resigned as Bankia's chairman, and 32 other top executives. They are suspected of falsifying accounts, price-fixing and misleading investors in the lead-up to Bankia's initial public offering last year. Most of the IPO shares were sold to Bankia customers, who have now lost more than 75% of their investment.
After its nationalization, Bankia acknowledged that it had misstated its profits for 2011. The bank initially declared a $387-million profit for that year, which ended up being restated as a $3.7-billion loss.
Bankia was created in 2010, with the merger of seven regional savings banks. Last month, Spain's state prosecutor launched a separate investigation into the legality of that merger.
Rato has close ties to Spain's ruling conservative Popular Party, having served as economy minister from 1996 to 2004 under a previous government. The probe into his conduct could prove embarrassing for Prime Minister Mariano Rajoy’s party, which had previously rejected calls for a public investigation into alleged mismanagement at Bankia. At least two other former Popular Party politicians are named in the investigation.
The case is likely to stir public anger over the conduct of politicians and business elites, while the country's unemployment tops 24%.
The probe was triggered by a suit brought by a small political party called Union, Progress and Democracy. Judges will determine if formal charges should be filed. If convicted of the crimes alleged in the case, defendants could face up to six years in prison.
For the record, 2:47 p.m. July 4: A previous version of this post incorrectly said the bank restated its loss in 2011 as $3 billion. It was $3.7 billion.
-- Lauren Frayer
Photo: Rodrigo Rato is shown in an Oct. 20, 2007, file photo taken in Washington. Credit: J. Scott Applewhite / Associated Press.