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.
Overall, about 100 Spanish bankers have been named in continuing court cases that have mostly focused on loans said to be fraudulent, conflicts of interest and excessive compensation packages granted by collapsed cajas. But Blesa is the first among them to have spent any time in jail.
Blesa, a former official in Spain’s Economics Ministry, became chairman of Caja Madrid in 1996. That was shortly after Jose Maria Aznar, a former classmate of Blesa, was elected as prime minister. In April 2008, Caja Madrid announced that it would buy 83 percent of City National Bank for $927 million, following the lead of other Spanish commercial banks that had already expanded into the United States. Two years later, it bought the remainder for $190 million.
According to court filings, Caja Madrid absorbed losses related to City National at a time when it also faced rising domestic problems linked to Spain’s own housing crisis, creating “a perfect storm.’’ But Abess, however, who famously shared $60 million of the proceeds of the bank’s sale with current and former employees, said he does not believe City National’s loan losses were “a fraction’’ of the loss claimed in court documents.
Blesa was replaced as head of Caja Madrid in 2010 by Rodrigo Rato, a former managing director of the International Monetary Fund who was finance minister in the Aznar government.
Under Rato, Caja Madrid was at the center of the formation of Bankia, a seven-way merger of cajas that issued public stock in 2011. The combination was designed to consolidate the caja sector by allowing stronger entities to absorb the losses of weaker and smaller ones threatened with collapse.
Instead, Bankia sank under the collective weight of bad property loans and required 18 billion euros of the European rescue money to keep it afloat. The bank, which was nationalized a year ago, posted a loss for 2012 of 19.2 billion euros, a record for the Spanish banking industry. It has recently been trying to sell some assets, including City National.
Bankia is now the target of several lawsuits. Last year, Rato appeared in court after being named along with 32 other former Bankia executives and board members in a criminal inquiry. They are suspected of offering potentially misleading accounts at the time of Bankia’s 2011 listing, which involved tens of thousands of the bank’s retail clients buying into the stock offering. The former Bankia executives and board members deny wrongdoing and have not been charged so far.