The purchase price of Miami’s highly rated City National Bank of Florida is at the center of a potential criminal case now unfolding in Spain.
Miguel Blesa, the former executive chairman of Caja Madrid, has become the first prominent Spanish banker to go behind bars since the start of Spain’s financial crisis. He is accused of leaving the company saddled with huge losses because of an allegedly ill-advised takeover of City National Bank in 2008.
Caja Madrid was one of several banks that eventually merged to form Bankia, which became the biggest mortgage lender in Spain.
But the problems at Caja Madrid were part of the cascading issues that eventually undermined Bankia, which the government seized last year. Bankia’s collapse set off a crisis that resulted in Spain’s banking system requiring a 40 billion euro, or $51.3 billion, European bailout.
Blesa, 65, spent Thursday night in a Madrid jail but walked out on Friday after posting bail of 2.5 million euros. The Madrid judge in charge of the case, Elpidio Jose Silva, had ordered that Blesa be arrested and have his passport taken because there was a risk he might flee the country.
Blesa has denied wrongdoing and has not been formally charged with any crime. Bail was set at 2.5 million euros because it is an amount equivalent to the severance payment Blesa received when he voluntarily left Caja Madrid in 2010.
He is accused by the group Manos Limpias, or Clean Hands — a far-right association that has been pursuing several corruption cases — of buying Miami’s City National Bank in 2008 at an inflated price without following due diligence by checking into that bank’s underlying liabilities. Silva is also investigating whether the purchase involved falsifying documents.
City National Bank declined comment, but its former longtime chairman, CEO and owner, Leonard Abess, on Monday disputed allegations that the purchase price was too high, and said the Spanish bank conducted substantial due diligence. He said the Spanish bankers courted him for two years before he would even let them make an offer.
“The bank wasn’t for sale, and they paid what they had to to get it,” said Abess. “It was a fair and negotiated price.”
Moreover, City National, which was founded in 1946, has consistently earned top ratings from ratings agencies, both before and after its sale.
In October 2008, one month before the bank was purchased, TheStreet.com rated the bank A+ — as the only institution, bank or savings and loan in the nation with $1 billion or more in assets to receive the A+ rating.
And in April 2009, after the purchase, it continued to be TheStreet.com’s highest rated bank in Florida of its size, with an A rating.
Bauer Financial, the Coral Gables rating firm, also gave City National its top rating — five stars — in 2007 and 2008, as it does currently.
“Since the late 1980s, City National Bank of Florida has consistently performed well, even during this latest crisis,” Bauer Financial President Karen Dorway said Monday. “It’s definitely a local bank success story.”
The case highlights how Spain’s banking troubles stretched beyond its borders, as cajas — regional savings banks that are tightly controlled by area politicians — tried to emulate the overseas expansion of their commercial peers during the country’s economic boom.