Questions Raised Over Bankia Creation

As shares in Bankia slid further away from their listing price on Wednesday, questions were being asked about the wisdom of having created and floated the Spanish lender in the first place.

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Billed as “the leader of the new banks” in its own publicity, Bankia achieved something last year that almost no other company in Europe could — it sold shares in an initial public offering, raising 3.3 billion euros ($4.3 billion) in the midst of the continent’s debt crisis.

This feat was hailed as evidence of the success of the then Spanish government’s crusading banking reforms.

However, having been primarily marketed to Spanish savers, Bankia was not like other stock market listings.

Anyone who bought into the offering, which was marketed as a solid savings investment to the bank’s clients and sold in part through its branch networks, has now lost more than 40 percent of their money in less than a year.

“No foreign institutions really touched Bankia when it was being sold,” said one U.K.-based institutional investor who had been marketed the offering by investment bankers. “There were just too many red flags.” About 60 percent of the share issue was sold to retail investors, with the vast bulk of the remaining amount being placed with domestic Spanish companies, such as Mapfre, the insurer which Bankia holds a 15 percent stake in.

Now with Rodrigo Rato, the former International Monetary Fund managing director who became Bankia’s chairman, having resigned, and Madrid on the brink of intervening in the bank, the listing of Bankia is recognized by the bulk of analysts, bankers and businessmen in Spain as having been a failure.

“Some of the caja mergers that took place were dysfunctional,” said Santiago Carbó, a professor of economics at the University of Granada. “One of the reasons were the continued political ties to the cajas, but the government was also too optimistic — they thought the crisis would be over by now, but banking crises take a very long time to resolve.”

Since the listing, the value of the assets of the various component parts of Bankia, which was forged from a merger of seven private savings banks, has been called into question.

Banco de Valencia, a Bankia subsidiary, was taken over by the Bank of Spain last November, prompting a civil war inside Bankia over which of the constituent members had overvalued their property assets at the time of the merger.

Deloitte, the bank’s auditor during the time of the stock market listing, last month refused to sign off on the accounts of BFA, Bankia’s parent group which houses the combined entity’s worst assets, and holds 45 percent of Bankia.

Deloitte declined to comment on the accounts of BFA, which had reported a second half loss of 278 million euros ($360 million).

Unease about the accounts increased after Bankia revealed that it had renegotiated 9.9 billion euros ($12.8 billion) of assets in 2011 to avoid them from going bad — a practice that is accepted by regulators but is seen as a possible way of banks understating their non-performing loans.

Now, with the exit of Mr. Rato, and the arrival of José Ignacio Goirigolzarri, former chief executive of BBVA, and one of Spain’s most respected bankers, the Spanish government hope that this exposure can begin to be cleaned up.

Mr. Goirigolzarri was personally approved by the heads of Santander, La Caixa, and BBVA on Friday, people briefed on the meeting say, and he is expected to clear out large parts of the legacy management inherited from the cajas that form Bankia.

It will not be a small job.

Iñigo Vega, analyst at CA Cheuvreux, notes that BFA contains 51.5 billion euros ($66.8 billion) of property assets, or 17 percent of the entire total in the Spanish banking system.

After the disappointment of the listing, and the resulting pain it has caused for small investors, the arrival of Mr. Goirigolzarri has given some hope that success can be salvaged from a bank that holds a 10 percent market share in Spain.

“What we are seeing is change of rhythm in the banking reform, and that is positive,” said Juan Carlos Ureta, president of Renta 4, a Spanish brokerage. “It may be late, but it is positive.”