Full statement of former Governor of the Bank of Spain Miguel Angel Fernandez Ordonez Judge of the High Court as a witness in the case Bankia

EL PAIS

Full statement of former Governor of the Bank of Spain Miguel Angel Fernandez Ordonez Judge of the High Court as a witness in the case Bankia


“Por mucho que uno haga, el que lleva el volante se sale y se estrella”

Declaración íntegra del exgobernador del Banco de España Miguel Ángel Fernández Ordóñez al juez de la Audiencia Nacional como testigo del caso Bankia


El País Madrid 11 MAR 2013 - 00:51 CET



"As much as you do, which carries out the steering wheel and crashes"


Full statement of former Governor of the Bank of Spain Miguel Angel Fernandez Ordonez Judge of the High Court as a witness in the case Bankia



The Country Madrid 11 MAR 2013 - 00:51 CET

HOME OF SIGHT
Asked by counsel for the prosecution (UPyD): Good afternoon, can start comentándonos what date to what date you he held the office of governor of the Bank of Spain?
Response Miguel Angel Fernandez Ordonez: I in summer 2006 and it was the summer of 2012. Six years less a month, I went a month earlier, on June 10, exactly
Question. Did you get any warning of his predecessor Jaime Caruana on the worsening economic situation? How was this transfer of power? Was there a time when you were reconciling with him?
Response. Actually more than that. Because I was appointed a director in March. In the Governing Council was, of course, Jaime knew, was my classmate. But, finally, on the subject of the economic situation, I think it was fairly well known. In another series of things we're talking about, especially, all responsibilities, what issues had meetings with Frankfurt ...
P. I ask because in his day basically transcended a letter of inspectors Bank of Spain to the Ministry of Economy in criticizing the complacent reading of the Bank of Spain governor on the economic situation, its unwillingness to make the necessary reforms , the cumulative risk in the financial system ... Is that what you felt at that time that inspectors were reading?
R. At this time no, because that letter was not read. But I later learned, because then that letter has been widely used. After I was aware and read. But at that time, because neither was read in the Council, but, of course, I later learned.
P. I ask also because Inspection reports Caja Madrid, from December 3, 2010, contains some striking demonstrations: it is said that the deterioration of the credit portfolio is the result of the excesses committed between 2003 and 2006, representing an average increase investment of 22% risk-focused real estate, which is where the main problems. The promoters funding amounts to 18,000 million with a failure rate of 20%, and so on. Do you agree with the view of the inspectors?

Deshacer cambios

Alpha

R. Yes, of course. Caja Madrid is clear that, as with other entities as Bancaja, had several problems, and there are reflected not only these: the problems they had were of concentration in real estate lending, ie the bubble, as you know, if is measured in credit growth to GDP, in 96 starts and peaks in 2006, with growth of 44% loans to developers. That's where it accumulates lending then mean not returned and asset impairment. Continued some time because although credit growth rates fall and collapse, some credits are awarded later. But obviously, the height of the bubble, if one measures growth in house prices, is between 2000 and 2004, when it is growing 15% each year. Then it collapses. That is partly, but not only. I think there are other problems with Bancaja and Caja Madrid and not only the deterioration of real estate assets.
P. Then go into these problems. Do you think that this deterioration of the loan portfolio that was referred inspectors duly reflected in the balance?
R. Man, I think so. Obviously, because they actually look when you start provisioning seriously is when delinquencies jump. But in the meantime ... The problem in perspective of the bubbles, and there are a reflection that has been made in the Financial Stability Forum at the Bank of Spain entered when I first governor, coinciding with the G-20, and where it has reviewed all the regulations that had, trying to say what could be done to make it not have happened. Clearly, in hindsight, there were a lot of rules changes that had to be done. And although these problems do not appear, or not appear because inflation in the macro, or actually in arrears, it is clear that they have now decided on a set of rules, which are being implemented in Spain for almost three or four years, with which all this is correct, based buffers [mattresses] capital, based on say, 'Look, but do not increase inflation, credit growth is very important' ... Some of those provisions had them Spain curiously. At some point, pioneered the issue, as with the famous general provisions.
"I was very critical of the bubble"
P. I understand what you are saying is that if in 2006 someone picked up the balance sheets of banks, these balances reflect the real situation ...
R. Yes, what happens is that then it is clear that with the breakup of the bubble, the deterioration appears, but having those standards provisions, I believe that all banks comply.
P. And do not think that precisely in order to bring out the situation that was somehow hidden in the balance ...
R. No, not disguised.
P. Decrees were promulgated ... 2/2012 and 18/2012, in general, was not the purpose of these decrees in revealing the real situation?
R. No, I'm going to say 2012, it is sometimes said that the decrees of 2012 and so on. I see a continuity in the decision of the Spanish crisis, practically since become aware (...) and begins with the law of the FROB, the Banks Act, the Capitalization Law, sanitation ordinances and such. All that has followed principles that virtually all governments, even now the troika that is what is saying what needs to be done, have remained. And that means cleaning up go, go capitalizing and therefore sanitation of the decrees was a necessity at the time, as the capitalization. It is sometimes said, some banks, this decree has affected me negatively; look, from the point of view of the Bank of Spain, although there had been no decree, you should have accrued. If you want to say something, right after taking office we met the Deputy Governor and I, with the new minister [Luis de Guindos]. We said, 'Look, if all is well, all is provisioned, the balances reflect all, we believe that in view of how it is working, because the fall was very important growth-expected loss estimate that should be made about 60,000 million allowances'. After the decree was less [was talk of 50,000 million]. But that's something that was necessary, no doubt, from the point of view of the Bank of Spain.
P. As I have understood, shortly before the start of Caruana, these provisions were reduced countercyclical. What you seem right that decision?
R. Look, I was very critical of the bubble, because I was a columnist in the country, and the items are there, you can enter the site, articles saying that this was going to lead to disaster. Really were few voices, most people were happy, and remember who wrote almost four against the bubble. Clearly, the Bank of Spain could have done things. I decided, upon entering the institution that I was not going to criticize some decisions, and I've kept. What else does.
P. In any case, you do not re ...

R. No, but the problem is that I somehow mine was that the patient, who was drunk, not to die. He had already begun to fall the rate of credit growth had begun to sink everything began to fall to 800,000 housing production, which had to do then was turn around. In sanitation issues certainly has. Note that until late 2011, the writedowns made in those three years of reforms are 110,000 million euros, 11% of GDP. And with the sanitation of the decrees [of 2012] we are almost 18% of GDP. This means that the bank is cleaning all public resources are not mostly, but are somehow derived from the benefits of reservations, and so on.
"They took off the paper hands"
P. A constant of its mandate has been the increasing reliance on wholesale interbank market entities. I understand it is a problem that came before, but it continued to get worse. Did you do anything the Bank of Spain to mitigate this problem?
R. Yes, the fundamental problem is that the bubble is not given credit to deposits that have, but start asking banks credit and therefore the credit / deposits are greatly exceeded. There are other countries that are worse, but banks in Spain they do is put very well, almost paper withdrew their hands, with mortgage debt and securitization. The global crisis, because Spain has experienced three crises, the international crisis, the housing crisis and the euro crisis, there has been talk of the perfect storm, the international crisis, the Spanish banking system not directly affect anything, because it has no products toxic for different reasons. But there are two indirect effects that greatly affect Spain: one is the drop in growth, entry into recession, and another is the market close. In view of Lehman Brothers, which is the trigger, people suddenly found that a bank which was excellent, has been placing products are zero at the time. So what happens? The whole market, all investors, bank financing ... Nothing. That's why I said the problem is compounded by the breakdown of the bubble. What has been done is create entities [more] size, to be financed, a small entity is financed almost not at this time. Then go remediating institutions, recapitalizing, to recover confidence. I would say the key issue throughout this period, and is the obsession of the Bank in all, confidence. Because when one depends on the other, at the end give credit if you trust them, if not, then no ...
P. All that I understand and I share it, the question is whether the Bank of Spain had skills, tools, mechanisms to force these entities to reduce this dependence on external financing.
R. Yes, well, that will be done in all plans, for example, in the last plan we approve of Bankia, a condition that had to meet was that there was a significant divestitures to reduce wholesale funding. This has been done continuously, it has been provided. But again, most of the problems are, and, alone, alone, with a recovery of confidence in banks, is when you can do ... Because I still need [confidence] Spanish banks. What happens? That there are other ways. I've been lucky enough to be in the Councils of the European Central Bank where we approved, given that markets were closed, a move to the Spanish banks have been short, because they would have died if not, that is the adoption of the LTRO, of large liquidity injections, one in December, one in February, which have been key to maintaining Spanish banks. For Spain, for Spanish banks, the decision of Frankfurt has been more important than anything we could do here.
Reports of the inspectors
P. Before moving on to more concrete things, I would ask for the problems that have been denounced by the Association of Inspectors of the Bank of Spain, which covers 90% of active inspectors. The association reported that a legal change in 2003 meant that the leaders and the general direction of Supervision acquire power to make summaries and adaptations [of inspection reports] to send to the executive committee. And that this change allowed the arbitrariness and discretion of top management in deciding actions, is this so?
R. This is one of the issues that have brought certain inspectors. Because I've worked with inspectors, team leaders, with supervision, and they also sent a letter not made public his teammates, saying it is discrediting the Bank of Spain without any foundation. For there were other inspectors. Look, this is one of the things, claims of inspectors, who comes from afar: Mariano Rubio had them, the angel had red, Caruana had, and I've had the next governor can not meet them because now the supervision passed to the ECB. And these claims were to create an inspectorate, that anyone but [inspector] might be in supervision, even a great mathematician, or a great computer, something that no governor has agreed. In this filter, it is said: 'I want to be like the tax inspector, I sign the minutes and such'. Well, even though common sense can not leave this to say what an inspector, to the executive committee commissioned a study to see how it worked, as you state that gets in 2003, before I joined, but seemed reasonable to me ... What you did was a study, which certainly did Oliver Wyman, is in the bank and could be regarded, in which he was asked to tell us whether in major countries, France, UK, etc. , and two that seemed important, Canada and Australia that had brought the crisis well, if this addition of an inspector, I saw a group leader, I saw another, a risk manager saw, what they called the inspectors filters, was peculiar Bank of Spain or not. And what the report says is that all countries do that. For a topic as sensitive as a bank intervene to a decision of this kind, it makes no sense that the Bank of Spain inspector is like the Treasury that makes a statement and it's over. That is also to finance problems, and can make or break a company. It charged that a bank is a very big issue. What does the Bank of Spain is that they call filter system, but means that a decision is not without having thoroughly studied by the different levels.
P. As far as you know, is this system is now under review?
R. In all, note that we, the Bank of Spain, apart from that and given the problem we had been, we analyze what errors may have committed in supervision. And you do many things, is responsible for this study to see what others are doing. And internal audit commissioned to do three audits on control procedures. And those audits out a series of recommendations, many of which are those that have been sent to Brussels, and they are there. Because there were things that needed fixing, the audit came out favorably, or partially or fully satisfactory satisfactory. That also put him in an internal circular, where all things that made sense, changed. And besides that, they drafted a new guide to risk, which was completed in February 2012 draft. If you read the report that was sent to Brussels all this is told, how the Bank of Spain, himself, reviewed all supervisory issues and [Brussels] report makes a series of recommendations that are mostly the the Bank of Spain had done. But it is, and that's true, is not it a body, which is what they wanted these inspectors, is not that if an inspector says one thing that does not filter anyone, not certain things, which can not be other they are computer scientists, mathematicians, because to calculate risks, inspectors are very important, but there must also be other experts. And none of it is and I hope not, because I believe that these claims are not good. I understand from a corporatist perspective. But do not get it right. And since indicated that the ECB will now oversee, to tell this is going to sound like whatever.

"The Bank of Spain can not avoid to do stupid things"
P. At other times, the complaints are in the reports themselves, a very recurrent lack of personal and other non-cooperation of some entities. For example, in the December 2010 report on Caja Madrid, speaking of difficulties and delays in obtaining information and the need for strong pressure, even denouncing all implemented a corporate culture from the general direction in that hamper inspections, is this so?
R. I think if it says the inspector and then someone came and believes is right ... I do not know exactly. But many of these things there. Continually, the Bank of Spain is making requirements based on what the inspectors and send it to the entities. But are secret, and not only do Bankia, also the most important, terrify people to see what is said, that risk management is not good, not bad and such. What the Bank of Spain is that when you try to exit the lane ... because unlike normal administrative law if you have breached I passed and pass the controller in all countries is a special administrative law because so when you try to exit the lane is that again, what matters to me is not to punish, but to fix it. And he says, 'Change this, change that ...' Unfortunately some people do not change, that does not change, and in the end you have to intervene. And that is enormously expensive, you have to try to avoid.
P. I understand that before the intervention measures will not be as coercive
R. Yes, but not much more because, mind you, the public reprimand, which is one of these measures, it is almost to the intervention. Imagine that the Bank of Spain makes a public reprimand ... In the end, of course there are all kinds of sanctions, when they are not public, but in the end the key is to bring the entity that does not have to be operated on, this is the goal fundamental. Because it can not prevent the Bank of Spain is that you do stupid things, and the Bank of Spain or anyone. In the United States involved, the good years, 400 banks. And the bad years, over a thousand. As much as you do, which carries out the steering wheel and crashes.
P. Moving on, yesterday I had occasion to ask Mr. Ariztegui, exsubgobernador and Chairman of the Governing Committee of the FROB, about some possible breaches of company regulations by the FROB. Specifically, I asked about the lack of preparation of the accounts on time, on the failure to consolidate accounts, and so on. The question is what the Bank of Spain has some competition FROB monitoring? And if not, who supervises the FROB?
R. Who knows Mr. Ariztegui answer is, that you had yesterday, who has been president of the FROB until we're gone.
P. Not asking about ...
R. Have you had Mr. Deputy Governor
P. It asked about the breaches, but on monitoring FROB, if any, if you have been subjected to ...
R. I do not know exactly. If there has not been used, but it is also true that it's there is the Bank of Spain through the Deputy Governor.
P. On the creation of Bankia, what role did the Bank of Spain in the creation of the group through the SIP? Especially in relation to the incorporation of Bancaja namely Mr. Ariztegui ratified, more or less, the version that had previously given Mr. Olivas on a Bank of Spain's efforts to incorporate Bancaja that materialized in a meeting on 1 July 2010. Is this you? How this process, what were the reasons for rejecting Mr. Olivas integration?
R. On the first point, I've been talking with Mr. Ariztegui this morning and one of the things he said was that he was not enjoined, that what you see is what Mr. Olivas said. Therefore, it is not true that ratify what he had said Mr. Olivas, is what I said to myself, we will not go ...
"A merger never creates problems"
P. I ask, what were the reasons for refusing Olivas?
R. Mr. Olivas, somehow, was at that ... I do not know, if I may, you can only understand what the Bank of Spain if the Act is FROB. The FROB Act, a law that I find very interesting, that starts the process of all these laws that the governments have been doing and in the end they, as President Draghi said yesterday, the resolution ... The Spanish settlement system is deep and solid, because there have been many things ... The FROB Act itself has just broken out when Lehman Brothers, and most countries have broken their banks very important, the second and the third in England, in Germany the second, Commerzbank, and Hyppo Real State, two thirds of the Belgian banking ... And I think it reacts as it should react, when you have a large bank that has been: getting money and ran. There was, however, a certain complacency, saying 'as in Spain nothing has happened that, nothing happens'. Then the Bank of Spain addressed the main opposition party, then was Mr. Montoro financially responsible, and Mr Solbes, saying, well, it seems that nothing happens, and it's true, because the tumor is a slow bubble, as the product is not toxic, rapidly appearing, and what makes supervision there, which brings us to send that letter, that is, even now are reasonably well institutions in future these entities will end badly. And almost a calculation of about 40 boxes in that situation, unable to speak or anything, and as three banks. Then what is said is we build a system tailored to the monetary union, and it showed in the case of Caja Castilla La Mancha ... is that monetary union before, my predecessors had no more to say 'goal three billion there' and the issue is resolved. With monetary union can not be monetary financing, and therefore, create a state fund exists to accommodate the liquidity and nobody had seen, because no one thought that this would happen ... and other issues of the boxes, because until then had been the problems they created. All this makes the FROB, but the Law of FROB is essentially what it says 'look, if I do nothing, if I do an Act of FROB, here will go down like a series of boxes drops intervened'. In a situation where there is mistrust on the bench, taking the top banks in the world, which had Spain, it will begin to negatively affect, and what it is trying to avoid the most of this type of intervention is How For maximum FROB Law? So saying, look, there's no money if you do not change. Many boxes were then asked why the government does not give money as given in England, in Germany, in other places, and, immediately. Man, give money to a major bank that has collapsed, a Royal Bank, a Santander means, but give money to 40 boxes for nothing, someone that has led to this situation ... So, what is say is, I give money, and give incentives too, not just money, give incentives that can treat capital gains like this, so if you join. Integration is key because somehow fundamental in the Spanish banking system was to make a conversion, was close entities, was to move from those 40 and such. And closing track was very costly intervention. The integration is seen as an opportunity for whoever does not want to be involved, that integration into ... I return to Mr. Olivas and his question. What happens? I think most of the boxes they realize they have to go to integration, more professional managers say: here is a chance, I will get money, I'll be able to do this and I do. But there is another set of them that resist and including Mr. Olivas. Although the Bank of Spain said to him: 'Look, this box has benefits, but this box alone, president touched me tell you just see-Monitoring on intervention'. It is rather surprising that banks see him quickly but boxes, probably due to lack of professional management, the Bank of Spain had to tell. Mr. Olivas for what is called is to say, 'Look, we do this, you will do whatever you want, but we see it as well'. Then it became 'the threat of intervention'. No, I was saying, this is what I see the supervisor, they see the inspectors. This is wrong. You translate what inspectors are looking into the case. That's what he says to Mr. Olivas. Mr. Olivas could have said no, and said amount of boxes, such as CAM, which was operated, and do integrations. The Bank of Spain does not decide or approve the merger, all it does is report favorably. Yes has no veto power to stop but integrations. The role of the Bank of Spain was to facilitate as much as possible because the integrations integrations are an opportunity. It is said that there were a number of boxes that were wrong, as Bancaja and such, and then merge them is bad. A fusion never creates a problem. People will have to know. A merger is an opportunity to solve problems. The problem of the boxes is the impairment or lack of margin, that was the problem and Bancaja Bankia. Integration is a chance to win, with lower costs, improve the management change, then an opportunity may be lost if not done right, but the Bank of Spain is obliged to promote. The urban legend is that mergers create problems: seven bad cases make bad, they can do good. Excuse me, if you create a box that is not quite a disaster, but is solvable problems, put money, change management, professional management makes ... And the proof is that the number of integrations that have come without problems are enormous. We are looking at Bankia, in Novacaixagalicia or Catalunya Caixa, but there is another number of mergers that are working. And then there's another thing. It says, 'you are pushing for the merger'. Look, I've had four or five boxes, although the Bank of Spain seemed reasonable to the merger, have said no. Mr. Olivas could have done as the lord of Unicaja with CCM or Cajasur, or the president of Cajastur that said not merged with CAM. I have had the fear that he had not understood, because obviously we posed a problem, and probably for Caja Madrid, which was another box to give him the famous 25%.

 

"What would have happened with Bancaja alone?"
P. I disagree with what you say that the merger never creates a problem, but not the time to argue, but if you just said this in the speech, said the governor of the bank of Spain, can not be interpreted as a threat or as a veiled threat, at least? That is the idea conveyed here Olivas, who said: I was told that the entity could intervene, I agreed based on that injunction. In normal conditions would not have accepted the integration.
R. Mr. Olivas, for unprofessional it was, knew how was the box. If that you are going to end intervened tells banks Unicaja or Basque, respond: But what do you say, Governor? If I have an important capital ratio, if I have no real estate concentration, if I have no wholesale funding ... You can be the governor. What happens? That Mr. Olivas know, little as he knew, because obviously it was not a professional manager, how was the box. What would have happened with Bancaja alone?
P. Olivas said its audits were immaculate, we had a sound accounts, with figures better than the industry average. There's something not right.
R. You have not seen the reports of the inspectors noting the problems I had Bancaja. They are not insurmountable, because the proof is that the merger of Bankia if there had been the second recession probably had gone perfectly. The hypothesis that the Spanish economy would grow ... The Research Department of the Bank of Spain said the economy would grow by 1.5% last year. And is an excellent research service. Have you seen the news today we've fallen? -1.8%. But is that the International Monetary Fund, a very respectable institution, saying that we would grow 1.7% in 2012 and said that Spain would be the European country most grew. Had that happened, that's what I thought most people, it probably would not have had problems Bankia. What happens? That is a stunning deterioration, a second one is planned recession, profound, and what happens in the economy translates immediately to the bank, because the strike is arrears, falling house prices is impairment of assets, and so on. And what appears on a business plan that will go well, it turns out that's not right.
Meeting with Rato and Olivas
P. The question is why at that meeting called Rato and calls another?
R. The problem of President Rato is: I think the president of Bankia, Caja Madrid at the time, has a few months, at the beginning, which also has a dream that can go alone. Until March does not sit with the Bank of Spain to see you have to do integration. But before he realizes, unlike the president of Bancaja. Rato President tries to do the integration starts looking medium boxes and not get more than five or six small boxes. The president's problem is different Rato. Call the Deputy Governor, the truth is that I know all this because I told the lieutenant governor because very few times ... I was with him this time, again with the president of a box telling him to leave. The work I have done magnificently my staff. But do remember that time I said that Rato Deputy Governor called asking why if those boxes had not autorizábamos integration, and replied that the problem was that there was a rule that you have to be an entity which is 25 % more than you had. The problem is that needed Rato an agreement, but the box could possibly be better than Bancaja. Then he decides that if Olivas says yes, it is called to Rato Rato because he had said the lieutenant governor is unable to speak with Olivas. He calls and says, "Look, this is solved. I have it here, will you come? Come and talk to Mr. Olivas and have clearance to talk all you want and then let us know what you decide. "
P. He says that Caja Madrid, Bancaja could be better, but if you go to the inspection reports Caja Madrid December 2010 the situation is bleak.
R. The question is whether or not it was solvable. If you get money, if you change the management, if you make a plan to close 800 offices, to throw a lot of people, if they can generate resources to address sanitation and capital needed by the body, yes or no? That is the question. On it was wrong, that's obvious.
P. The report ends with a clear conclusion: It is recommended in a SIP integration, given their bad situation.
R. Obviously, for that is what he was saying. Note that neither had read. Integration is the usual way to resolve banking crises. In the past, in Spain, now and will be in the future. Most large banks have been set as follows: Santander Central Hispano, Bilbao Vizcaya Argentaria. It is the only way to solve. And what happens is when you do not have sufficient capacity for integration ... We had integrations as Caixa Girona, Cajasol and others that have been integrated into La Caixa without putting money. Sometimes what happens is you have to put money, that integration alone will not do. This is laid the FROB. The FROB realizes that the boxes are not just for married and go to see him. Here we will have to put money, but at that time to put money, you're going to submit a closure plan offices, synergies, etc., and, if possible, shift manager. This is what happens in the integrations by adjudication. Interventions have ended with awards like Cajasur with boxes Basque of CCM with Liberbank.
P. Caja Madrid says he could be better off than Bancaja. But reports say their NPL ratios in 2010 were very high. What brought integration solutions?
R. Sometimes with integration is not enough and needs to put money, but integration is an opportunity, integration gives us more opportunities to do things. This idea that integration creates problems, I'd love to tell me what creates integration problems. The Government decides on Bankia: integration, money and good management. Put money and good management changes, integration Bankia but not touching. That Bankia, where Bancaja, with all its problems, not take and said, let's desgajarla. It is good for wholesale funding, to make changes and reduce costs ... I disagree, neither I nor any regulator.
P. Are you saying that the integration was successful Bankia
R. I did not say that. Clearly it was not a success, we must ask why.

Appraisals performed by affiliates
R. Appraisals by affiliates are recurrent. It violates the appraisal is performed by an independent company. Should not this lead to disciplinary proceedings?
R. Inspectors say that you have to do is integration. The problem is not solved by putting a penalty. The problem is solved by integration, taking margin and saneándose. Integration is a chance to resolve the problems, because many difficulties come from the lack of professionalism in management. That's been a problem until the last minute had the Bank of Spain with Bankia. The Bank of Spain has been relatively satisfied with the progress of integration in spending cuts, but we have not had that Bankia professional management with ability to govern the country's fourth largest. In this is what we were working in April both the direction of Supervision, the lieutenant governor and myself, it was time to take a step. He tried something with Mr. [Francis] Verdú, perfectly respectable, but it was a person who was able to manage an organization of that size. A person, again, highly valued by the bank. But the Bank of Spain says no. The Bank of Spain had a list headed by Mr. Goirigolzarri.
P. What was attempted with Mr. Verdú?
R. Bankia president is told from the integration that is necessary to put a professional manager. President presents Bankia has named CEO of Bankia Mr. Verdú. The Bank of Spain says Mr. Verdú is a wonderful person with a great resume, but we believe that there are other people who can lead a company in this category, especially in the commercial rather, the sales, which is what was wrong. When you compare with some other bank Bankia like there are banks that have had the same concentration estate, and the same problems, however, have left unaided Why?, Professional management by putting in place a mechanism that creates value and benefits are the key to clean up and capitalize. The problem of Bankia, and generally of the boxes is that they had little benefit, were profoundly inefficient. With few benefits, which are the first line of defense in a crisis, everything fails. Why our big banks have reacted to the crisis easily?, Not because they had not given property loans that have been given, but because they had a size of important benefits.
P. Why you did not authorize such appointments?
R. The appointments are the owner, the autonomous communities. There is a clear separation between solvency issues, leading the Bank of Spain, and governance, with the boards you know. This is a fundamental problem that the Bank of Spain has been reporting constantly. There have been amendments to the Banks Act, but insufficient. What has been discovered in this crisis is that banks in general, not all, have shown a huge inefficiency in front of banks. The owners, who are the regions have not been busy putting professional managers to give them benefits. In the Courts did a calculation that tell MPs: if boxes have had the same efficiency as the banks in the last 10 years the social work would have had 7,000 million euros. The fourth entity in the country, Bankia, had a profit of hundreds of millions when banks earned several billion.
Fusion frustrated between La Caixa and Bankia
P. Concerning integration with La Caixa, you said in Congress that had been accumulating Bankia mismanagement and you had disagreements with time because he refused to merge with La Caixa and to appoint a professional manager. Is it true?
R. The La Caixa I do not know who stopped him. It is an interesting example of how integration can solve problems. If the merger between La Caixa and Bankia had gone ahead may not be here today. Because I'd had a professional manager, yes, with a capital entity. It is a fusion that never evaluated on the bench but we had seen with good eyes if we had raised. It would have been a delicate integration, which has led to significant divestitures. Professional management of La Caixa would have displaced managers and Bankia could move forward, probably without the 20,000 million were after. The integration problem is, sometimes it is not doing enough integrations.
P. Why Mr. Rato refused to integration with La Caixa?
R. I do not know if Rato refused. What I know is that in the end we got the proposal. The stopped Mr Rato, the government of an autonomous region, the central government ... I do not know.

P. In 2006 there was a worsening credit and property risk but balances respond to the realities of the societies at the time. Report of the inspection of Caja Madrid for December 3, 2010: "In the last two presentations of results, March and June 2010, the trend is worrisome improvement taken to market risk, which also boast comparing with sector, which is opposite to reality and our forecasts. The floor of the doubtful balance is not from a decrease in accidents but an aggressive policy of refinancing delinquent retail operations and businesses failed advancement and lowered by mendations awarded, is being postponed much of delinquency given the profile of some debtors. " Do you think this house entities credibly reflect their reality accountant?
R. I would like to know the filter applied by different department heads. For some inspectors say that all refinancing is bad ... we must examine. On a concrete thing is hard to say. To me what bothers me and what I care about is whether the problems are soluble Caja Madrid if there is a change in management, if there is a conversion, if it wins ... Yes or no cost. That's the important decision ... Based on what you believe will happen.
P. Were you consulted on the decision to entrust the work Rato Bankia integration?
R. No, not on his appointment ... Ignacio Gonzalez, Guindos and Rato. I saw this in the newspapers. It was not our competition.
P. What scope is decided?
R. The autonomous region that is decisive, but I can not say anything, not our competition.
P. The Bank of Spain authorized integration and financial support to the integration process through the subscription of convertible preference shares, which you mentioned before that was the incentive for banks decide to join. Specifically in the case of Bankia amounting to 4.465 million were transferred on December 28, 2010. To request the Bank of Spain was prepared an economic report on the recoverability of the loan?
R. All that is in the dossier of Bankia. I remember the assumptions, the chances of the Bank of Spain to recover the money were lower than those of the OECD and the International Monetary Fund (IMF). The OECD said that Spain would grow to 2.6% in 2012-2013. It seemed reasonable based on those assumptions.
P. It seemed reasonable but failed. In fact, the Bank of Spain reports speak of very strong deviations. Apart from macroeconomic developments, the problems have to do with management.
R. How are we going to ignore the country's economic collapse. A fall of 1.8%, a fall of housing prices than anyone expected. All this is reflected in the accounts. What the Bank of Spain identified a defect is the lack of professional manager to run the business network ... That the share of cuts, synergies, which makes it reasonably Bankia what had been asked. Everything is gray and not black and white. Was the key management? In part, yes.

"Things change"
P. How can a company worth between 11,000 and 12,000 million worth 13,600 million pass?
R. You insist on that. When Keynes was about a lady and says, 'you are saying that the economy is very bad and a year ago said he was going very well'. 'Listen, says Keynes, when the data changes I change my mind, do not you?'. Things change. An example. The troika has forced the government to make the Sareb, the bad bank. A business plan that says you will earn 15% per year, a return that is not nonsense, is based on very cheap I buy the story and I'll sell more expensive. Imagine that this is not the case and that we followed in third recession. The Sareb lose money. You could tell the government in 15 years, picking up toxic assets audibly gets into that. But to me it seems to make sense because it is difficult to think that we will have a third recession. The other day at The Economist conference BBVA president said something interesting to me: "It has capitalized all, but will continue to fall in 2014 to capitalize more." In the presentation of the recapitalization of 2011, which was a success and the risk premium fell to 160 basis points, a reporter asked me, 'It's done everything?' And I said: 'It depends. If the economy takes, yes, if no, no '.
P. Is it wrong the Bank of Spain in these two statements: 1) The listed bank is not contaminated in the event of problems in the matrix as it limits their commitments to pay dividends, 2) It prevents the possibility of converting the FROB affect their preference capital to new shareholders of listed bank.
R. As of May 7, 2012 the Bank of Spain no longer lead the recovery plan.
P. The Bank of Spain has no instruments other than intervention to correct the markedly political character of the directors, lack of professionalism, preemption of the interests of senior management with those of the organization, conflict of interest, excessive compensation.
R. These things do not come under the Bank of Spain. The salaries are set by the board of directors. The autonomous communities have allowed this, are the ones with the competition. A compensation of 400,000 euros a year will seem nonsense to anyone, but the problem of Caja Madrid and Bancaja are billions at risk ... But it affects more social work.
P. Solvency and risk management are the responsibility of another Bank of Spain. Monitoring Quarterly Report, March 21, 2012: "We are finding that the entity is not reflecting the actual default of its loan portfolio." Do these findings were discussed with the auditor, had exchange of communication between auditors and the Bank of Spain?
R. These boxes had all these problems, lack of professional management, estate concentration ... The issue is how to solve the problem. Putting a penalty? Them crash and intervening? Or saying, I want a plan of integration, office closure plan, change management. What decides the legislature, with PP-PSOE agree, is that what is important is to solve problems and prevent the cabinet are seized. Politicization and lack of professionalism ... the Bank of Spain can try to press morally, but not competent.
P. The FROB loan should have been conditioned to overcome these problems of lack of professional management.
R. Exactly, but as the Bank of Spain does not have powers, we can exert pressure is only moral or threat of intervention. It can operate pressure. I remember an interview with President importantly, unprofessional, a box and say, 'You have to go and you have to go', I could not throw, but he was. Given an opportunity to go quietly, because it is important that these processes be made without noise, because the noise is awful in markets.

Banco de Valencia
P. For the Bank of Valencia, one of the directors has declared defendants in this office has expressed surprise, did not expect such a surprise and caused them. Was it also a surprise to the Bank of Spain? Or somehow already anticipated or expected?
R. Anticipated, we clearly. Since 2009 course is being said and is being said, you are talking to the Bank of Valencia. In the end, the whole issue is concentrated on asking who was then president Olivas a serious plan, that plan is not presented and then the Bank of Spain says: 'Here's to raise capital, here is that this increase capital and if not Capital expands this will end up being involved '. And then comes the whole issue of Bankia, is not it, that says, 'I'm going to the capital, but limited', and so on. And then there's a situation that leads to leakage inspection leading to a significant liquidity problem and we will intervene. But, hey, the Bank of Valencia had problems is not a surprise to the Bank of Spain at all. And, now, for anyone who was there, was there anyone who could be a surprise to think that he had no problems. Then the administrators have always seen this happen, I had more problems besides. Because when you have managers of the Bank of Spain, especially all matters of illegality that are difficult to see from the Bank of Spain appear as the administrator enters and gets into everything. Have you seen that is normal.
IPO
P. In the IPO, and somewhat forward in time, is held management the Bank of Spain to help in the institutional tranche Bankia? Nonformal Management ...
R. None
P. I mean
R. None.
P. Formal, informal, of some sort.
R. None. Of course, I can tell, neither the governor nor anyone does everything ... Well, sometimes the press out ... No, not the Bank of Spain ... But, come on, is in the DNA of the Bank of Spain that one can not do that sort of thing. You can not make or should make.
P. Trying and recent weeks, prior to the cessation of Rato and institutional crisis of the state, on April 17, 2012 the Bank of Spain approved the recapitalization plan, the strategic plan until 2015 and Deloitte supplement plan. The resolution includes a paragraph ... Then ... yesterday was much discussed, in which a plan is required to submit additional steps before May 2012, which includes basically two things. I read that is very short: "One short-term decisions on streamlining and strengthening their administrative and management structures that convey professionalism, independence and proven ability to implement the action plan. And two, over the medium term, an ambitious program of divestments made at a reasonable time to reduce its reliance on wholesale markets. Here yesterday, Mr. Deputy Governor, insisted that this new plan, the requirement to meet the May 31, additional writedowns included. Do you agree?
R. Totally.
P. What were these allowances?
R. ... Totally. Let's see, the goal of Bankia, though not in quotes, because the collapse of prices and the collapse in confidence in Bankia occurs from May 7. If you see the quotes, obviously ... But some analysts, in certain groups, say that there is a lack of confidence in Bankia. This is something that is obvious. It moves the market yet, but there is a lack of confidence. The key was to restore confidence Bankia. Then Bankia ... Some, say, of a plan. And then the executive committee which raises the director that this plan is missing, at least I remember four things: it lacks sanitation, lacks accelerate cost reduction plan, make a divestiture plan and change the manager, we understand, that is, get a professional manager, say, essentially, outside of trying to change the board of directors, etc. and all that. That should have reported. So, which approves the executive committee is: 'Look, this part of the plan, but also have to complete it, because you have not told me, you do not put me in their paper that, among others, because I remember the phrase- among others, is the subject of SANITATION, etc. ... is the issue of professional management and divestment issue '. So what is the executive committee approves all, does not approve at all exempt ... Ah! And I hope that in the letter to forward is that paragraph because that's what the executive committee approves. It says: 'No, I approve of what I have presented and also has to do something. No, no, I approve everything. And you have to do this. What happens is that I give a deadline '.
P. What it says, I see ... Sanitation. Here we talk about ambitious.
R. No, no. Among others, do not put "among others"?
P. Ambitious program of divestments.
R. You read paragraph because I remember perfectly. But ...
P. That is paragraph among others.
R. Man, of course! Sure.
P. There is explicit. In ...
R. Not express that. Neither it is explicit in the acceleration of the reduction of costs. They say there, because the two things ... especially the first, which is important, and expressed in a way that is polite. Because the whole issue ... When the Bank of Spain until May 4 gets to work with Bankia, with the presence of people from the Ministry, to see how it will fulfill all that. There are two levels: the officials of the Bank of Spain, at the lowest level, talk about the whole issue of sanitation and who knows what. And the chairman of Bankia topic, how cedes power is an issue that is only spoken by the Supervisory Director, the Deputy Governor ...

New plans for the entity
P. Specifically, the proposal is a bit convoluted drafting. On one side is permitted, on the other, however ... specifically Yesterday Mr Deputy Governor said that the Bank of Spain can not approve a plan, it would have caused serious reputational damage. Then in view of this, this was the compromise that was searched. Authorize but including new ...
R. Sure. Exactly. That is so. What was absurd was, is, say, 'Look, I ... Do not approve the plan, and now you just come' ... The impact that would have had that. 'Speak Now'. No. 'I approve of everything you told me and I also have to do these things.' It is absurd to say that it was not. The message is: 'I approve this plus these things'. Because in general, and is one of the things I've learned in the Bank of Spain in six years, is the idea of ​​giving confidence, not to make noise with the decisions. This is for example what is done with the interventions. The Friday afternoon. Immediately that says I have removed this manager, the other is there already. So peace is total. Confidence in banks is essential. And if not, creates mistrust outflow of deposits, problems, etc., etc. ... So, the question of how things are done, is almost as important as what you do.
P. Then the Ministry of Economy proceeded to order a new plan to Mr Rato, which he explained very generically that went beyond that nothing had just approved the Bank of Spain. Me, I'd like us, explain in a concise, concrete, which has knowledge of this new plan of the Ministry of Economy, which was demanding specific requirements, I understand that the plan has some demands, not a generic plan, which deadline was making this and why.
R. Look. That plan, I understand, when I heard Mr. Rato at the hearing in the courts, "because the plan had the ministry and such", was due to raise at the meeting of the weekend ... Because from April 17 until 4 May Bankia we are talking to the conditions of this type, and are present ministry officials, that at no time any ministry official separates what is making the Bank of Spain. Request more writedowns, have a divestment plan ... There are regular meetings between April 18 and May 4, there are regular meetings of the Bank of Spain's Bankia and representatives of the ministry. At no time ... I So when I heard that Mr. Rato said, I asked: 'But at some point the ministry has said it has another plan?' We absolutely everything. No, no. When you change the subject is in the weekend. And that I can not tell you what happens. But, of course, until the weekend, look, what we're talking about is downs, more downs and such ...
P. Let's see what Mr Rato said here is that in that brief period of time he creates a small group of people you trust in the help or assistance of McKinsey, to develop a concrete plan, which I understand is not the plan of the Bank Spain. It's another plan.
R. Nooo! It is the plan of the Bank of Spain. Making and, ultimately, if you see when they deliver the draft, not a plan, on May 4 ... I did not see it, but I saw it later. That suggests what you are saying the Bank of Spain. That draft May 4, if you look, is fundamentally more writedowns, is mostly downs, around 10,000 million, which was the figure that I had Supervising Director, and divestment plan. Except it was not there, but it made sense, because he was not going to let these people change management. But come, Bankia is speaking of the plan and the same week, before a decision is made, or whatever, the cessation of Rato, director's meetings with Economy Oversight and present, the Deputy Minister and the CEO, Mr. Carrascosa. And, on May 4, even Mr. Rato will see the director of supervision to see how he could lose powers, let a CEO. That is, until 5 or 6. And this weekend I do not know what happened, I have read, like the rest ... It takes ... Ministry ago whatever and ends with the resignation of Rato and such. Until then, the Bank of Spain and the Ministry are in tandem.

"Please acelerad this sooner"
P. But this plan is submitted to the Ministry. It was ...
R. I do not know. Besides the Ministry took the Bank of Spain.
P. But it was informally.
R. No, no. What informally ... Tan informally as the CEO and the board secretary. Note You formality.
P. So formally surrendered to the Bank of Spain ... I say that because the Bank of Spain ...
R. (Interrupting). Let's see, what is formally? Because while you're making a plan, normally there are few documents. One is talking and such. But what he says is regularly 'Look, I give this draft to see if this is what we're talking about and you think'. That's what he did on May 4 ...
P. So the question is, why do they deliver on May 4 if had until May 31?
R. For it is true that the Bank of Spain decided that in view of the situation ... Note that had lowered the rating of the Kingdom of Spain, had further closure, which Bankia not concerned because the liquidity that the ECB had not had problems. But the atmosphere was important, and the Bank of Spain says: 'I want you present this plan as soon as possible, we can not let go until the May 31'. And there is also according to the ministry.
P. And the Bank of Spain, how it communicates? Formally ...
R. Well, as you and I are talking.
P. Verbally??
R. Men, of course, because like everything. Until one takes the final theme, here is not a matter of 'I sent you an email and I will send you' ... What I say is: 'Hey, speeds'.
"The idea was that Rato remain as non-executive chairman"
Q: Let's see if you do not misunderstand. This formally express request, which is April 17, in which he asks for a plan that addresses before May 31, then ...
R. Then the Bank of Spain says: 'Please expedite this soon. It is important that exit '. What was important? The important thing is to leave a reassuring image of Bankia, which reassure the markets by saying 'Look, Bankia has made many more writedowns therefore is healthy, has gotten a lot of money and the manager who will take I do not know this is called Why '. It is here the idea of ​​the Bank of Spain, was not so much remove Rato Rato was to remain as non-executive chairman, is not it? So what would all the power the CEO, also seemed less noisy because the issue. And this is what should have happened. But ...
P. What gave particular term?
R. I do not know, what is called speed. Accelerate you.
P. Accelerate. Simply accelerate generic ...
R. Well, look, I do not know why I did not. They call me we have asked to speed but I have no idea. But come on, is that it is not so ...
P. Who asked him, if I may ask?
R. Oversight would be the director, or the head of the group, depending on who you speak. Supervision was director who was carrying it. But hey, to my knowledge ...
P. With your knowledge or your ...
R. No, he told me that was fine with me, 'Hey, we've asked that accelerate'. Very well, phenomenal.
P. I do not spin. Who decided to accelerate the delivery of this report? You, the Director of Supervision ...
R. But I think there is an idea, that is what is holding the Bank of Spain and the director of supervision is to provide a solution to this. And in that sense, it is faster. This is not a 'I make a this and determine a period'. This happens continuously, as in the parliaments. Well, I want more writedowns, then no, it is this, it is the other, the other commands do not know what this writing is writing, yes. From time to time, it sends a draft ... In a way, I understand that Bankia to send the draft as soon, which sends it, is responding to this demand by the Bank of Spain and the Ministry, because the Ministry agreed this. How would not agree to do the things we say with a certain speed with the situation we have?
A method of "unusual"
P. I have answered but good. Mr. Ariztegui yesterday said that the Bank of Spain was raised a doubt about the legality of the actions of the Ministry and was commissioned a report to legal services to assess to what extent such interference by the Ministry was legal or not legal. Is this true? What was the purpose of this report and who issued it?
R. The second, no ... what we did was, man, when you see that you have not been informed nor was he asked about something that will end after the resignation of Rato, when negotiating the end of the recovery plan as maintained by the Ministry, etc., and does not carry the Bank of Spain. There are two basic parts to get, again, it was also a target of the Bank of Spain. But what is leading the Ministry, for there is a time when you say, 'Hey, we are an independent body, this has never happened, it is unusual, there is no precedent, is it legal?' Because at some point someone can tell us something. No, no, it's perfectly legal. But we was not a written report or anything, because in the end the Bank of Spain is the one to approve the plan, as we do, although I was not there. Now that I can not take no one. Now, the negotiation to get that plan that is the Ministry that it does, well, it's legal ... it's weird, unusual, well, he had not ever done, right?
P. And I wonder, is there a report?
R. Not that I know.
P. Verbal, was a verbal inquiry to the legal services of the Bank of Spain?
R. Yes, like most things. No legal services ...
P. Who?
R. A Javier Pego.
P. Who?
R. A Javier Pego, the secretary or director of legal services. There in a conversation, where ....
P. Let's see, I'm asking basically insist on this, because you from the swearing in office was very critical of political interference in the work of the Bank of Spain. This, obviously, like a first-order political interference. So I ask you as a governor at the time ...
R. Let's see, it is clear to me that I did not like and it seemed unusual. I think that anyone can understand. But what do I do? ? Convened a press conference saying that I do not like and such? What it says a governor of the Bank of Spain in public is sacred, is tremendous. With a community of central bankers in principle tend to think of who is right is the central banker, not governments, for thus or so we were, because I'm not. So I think it would have been a huge irresponsibility. Whenever the Bank of Spain in financial matters what he has done is to cooperate with governments, with this and the previous discrepancies and never make them public. As you understand, there are always discrepancies. He does not know what, to build a law ... that if this could have been done differently and such. But not with this government or the public before I had done the discrepancies.

"Spain could leave the euro or to default."
P. And once this critical moment, does the Bank of Spain did something? Doth I protest?
R. The critical moment lasted a lot. The critical moment ... Realize that the collapse of Bankia, contributions of Bankia, drag the image of the big Spanish banks. I think that was one of the main problems, because the big Spanish banks had a ratings better than the 23 largest banks in the world. However, after the crisis of Bankia, sink and sink the Kingdom of Spain, is that in a month the premium goes from 400 to 500. The Bankia quote goes from 2.50 to 1. It is a stage with huge liquidity problems. This lasts and lasts pretty much, I would say, until Mr Draghi says he will hold, Mrs. Merkel says no one is leaving the euro. We estimated Draghi's words but Merkel's visit to Athens is also important. And the twist that gives the government on fiscal policy. Having said that you have to lower the VAT and such, there is a full in June, I think, in late June, where the government does the opposite of what you said. But this is a very important value. So what does the government, making Merkel, making Draghi, reassures the subject. And I believe that we are now much better. I saw that moment as a moment in which Spain could leave the euro or to default. Happily, all that has happened. The troika has told the Spanish government what to do, the government is fulfilling. All this gives an enormous tranquility. I think things have changed. At that time, it was a blunder that the Bank of Spain had made a high [criticism] and such, especially when it was legal, too.
P. Well, you say it's legal. I understand from what he tells me, it felt like some interference and therefore requested a report to legal services. Beyond that, at the time would ask the Government, the Ministry of Finance in this case, what requirements were asking Rato and why at that time. What explanations given?
R. On the subject of Rato, me or the minister informed me or asked me what I was doing over the weekend. I do not know what it is, because there is a portrayal of President Rato says it was a plan and do not know why, but the newspaper said it had been a meeting with bankers which somehow was forced. I do not know, I can not say what happened, because I do not know. And if I told you my opinion do not think he was responding to what I think I should reply here. I do not know.
P. On May 4, Mr. Rato sent to the Ministry of Economy called Divestment Plan, Sanitation and Margin Improvement, Rato Plan II, as it is called, which provided for a maximum stress scenario.
R. What speaks, the draft that delivered on May 4?
P. Yes ...
R. Not a plan is a draft, but ...
P. You said that was formally presented at the Bank of Spain.
P. When you say informally is that seems to have stopped. What I said is that he left Mr. Verdu and Mr. Crespo. But nowhere, no plan or anything. That is, is a draft pick which is to be understood, if you are asking the bank, according to the Ministry, it is correct or not.
P. Does that plan was presented at registration or informally?
R. I do not know, I guess it informally ...
P. I say this because you said before was formal. Well, is presented. Look, this plan of maximum stress, with heavy writedowns, amounting, in particular, from 9,639 million euros, already provided a request for help from the FROB 7,000 million euros. Do you know, but I guess not by what you say, why they rejected?
R. How was rejected? If that plan comes on May 4. On 5 and 6 there is a weekend ...
P. Why the Economy Ministry rejected?
R. Ah, I do not know.
P. You do not know anything ...
R. I do not know fully. I do not know, does not seem enough ... I do not know ...
"It seems to me a wise Goirigolzarri"
P. What about the cessation of Rato?
R. I do not know, but I wonder a bit, because officials more or less agreed. Anyway, maybe the plan, I do not know, maybe it was bad. Come on, the plan, the draft, picked insufficiently what was said. And maybe in the Bank, if any consideration, as it also would have rejected. I do not know because they gave rise. When the request is already converting it enters another route. The plan that explodes, of course, or eraser.
P. Did you know at the time the reasons for leaving? Have you said anything?
R. No, nor explained later, because I had a meeting with the minister later, but the dedicated on Monday to see how he prepared the second royal decree. But that's nothing. The only thing I said was: 'Look, what I think of Goirigolzarri a success'.
P. On April 17, when the Bank of Spain approved the recapitalization plan, etc., also approved the supplemental plan, which was intended to save the exceptions turn Deloitte had, especially for the two cases already known . Once approved this plan you would guess with some surprise that after the legal deadline for submission of accounts to the CNMV, however the company did not submit accounts to the audit report.
Another lawyer. One question, with leave, before you answer, if it looks good to your honor, the witness, my partner has used the phrase "with the exceptions set by Deloitte" if possible acláresele Mr. witness that this is an issue pointing him, the qualifications of Deloitte, but it is not a question before anywhere. I say this so that no misunderstanding takes this issue is important for the purposes of the cause. How about you, Your Honor?
Judge. I think what you say perfect. But I will not say anything. Because I do not know, and therefore I have not in my head whether or not such qualifications. In any case, ...
Problems with the accounts auditors
P. My question is very clear: you knew that Deloitte had hardened its position, in fact used that expression in a report by the Bank of Spain, regarding the issuance of a clean audit report. Then, the entity presents a complementary plan that is approved on April 17, but still pass the deadlines for submission of accounts to the CNMV and not present, or are subsequently via a significant event, and without the audit report . The question is, do you know that the auditor refused to endorse these accounts, having already approved the supplemental plan by the Bank of Spain?
R. No, look, I tell him the issue of auditor. The auditor begins to pose a series of problems before. I think at the end of March or so, I think, come on. The dates are, uh ... So pretty much what I convey to me the services, which of course talk and such, is that the auditor, which in principle what is meant, as he will tell and I must say, on Bankia accounts or has major problems. Got a problem, two problems with BFA accounts. And that somehow reassuring about that Bankia accounts with the accounting principles to be applied, they were normal. I'll tell you one thing, in the ten years I've been in the end before filing the accounts is normal for the auditor and the entity being discussed. It is not unusual, right? Typically, they reach an agreement. Typically eventually submit unqualified accounts. What was the expectation? That happen, right? When it seems that it is the auditor who gives a solution, right? The solution presented, the inverse of the absorption, which is obviously understandable. So what's the surprise? Well, not produced what is normally produced. And is there an unqualified audit and that is what hangs. And who gives an audit ... Eh ... Sorry, some unverified accounts by the auditor. It was a surprise because it is not normal. Now, here, I think the auditor or whoever will explain, right?
P. Do not know anything about the delay ...?
R. No, come on, I asked people because when it jumped, I said Hey, what is this? Look, we do not know, this is an issue between the manager and the auditor.
P. The first decision the new president on May 9, 2012 is the conversion of the equity holdings. In order to allow this mechanism, the Bank of Spain issued the audit report, in particular it is the report of May 11, 2012. I'll ask several things of this report. In this report, first is striking, that relationship is a very extensive background, detailed, exhaustive of all the plans, all the things that have been happening, but there is no mention at all Rato II report. That's for some reason? Why no mention of the report submitted to the Bank of Spain?
R. Why should mention that Rato II plan that does not exist, by the way?
P. It is a report that the Bank of Spain has learned ...
R. I say it's a draft that was sent to 4 and from 7 all varies. There is a termination of a person superrelevante, markets are collapsing and the new manager calls for making the conversion. But hey, I do not know what will be there, but you have to do the conversion immediately. Come on ... Do not make the conversion, because the conversion is done later, even when I am no longer.

The fate of Bankia was the fate of Spanish banks"

P. Do anything you just told me that is the Bank of Spain which formally asks requirements Rato go ahead ...
R. But the 7th has changed everything. I mean, is that you Realize that the situation has changed everything Bankia. Radically. Bankia you need after the collapse, having had two days without solving the problem, what you need is confidence Bankia. Then the new manager, who is also a manager supercapaz, from the point of view of the Bank of Spain in the list of managers was at number one and the Lord Himself Goirigolzarri, at the First Council, acknowledged that the first they asked to see what were the odds before taking over as CEO Bankia was the Bank of Spain. Therefore, there had full confidence in the ability of the manager of the Bank of Spain. If the entity requests the conversion of capital, which is somehow a message to the market that is willing to support Bankia. A Bankia must be supported because it is Bankia's fate was the fate of Spanish banks and the fate of the Kingdom of Spain itself.
P. Whatever you say. Anyway, this is a plan that told me it was at the request of the Bank of Spain, it is strange that the report does not mention. Apart from that ...
Judge. Please, let's stop giving views and we will ask questions, okay?
P. It says in the report, we have an asset, in order to justify this conversion, overvalued against its market value by more than 9,000 million euros compared to the equity of the investee at 4,500 million, both figures higher than equity posted to March 2012. But this issue was not known before? Why first appears in the reports on this date so later? I am referring to the March 21, May 11 to forgiveness.
R. It would be completely understood. Why did you say that was not known before? I do not understand ...
P. Because justify the conversion of shares into shares becomes a decision ... that society decides is impossible to repay the loan from the FROB.
R. Sure, but is that somehow, and that is change ... The change is before all this, what happens is that Bankia, somehow, it's getting another plan, but there are stages in the commission competition. The first is, 'I give you preference shares have to pay me 8%', and it comes a time when you see that entities can not, they need capital. And, somehow, what is getting talking to the President of Bankia is trying, somehow, to raise capital. And somehow I think he was asking the order of 7,000 million euros, and then returned, and so on. And then what was essential was to send a message that the Bank of Spain, the FROB in this case, because it is the Bank of Spain, sees him favorably, there is support for the institution. It makes sense to keep some shares that will pay 8%, give capital and more capital must be given, as will be seen. Then we see that in addition to these 4,000-odd million, they get 19,000 million. It is fundamental.
The Ministry leads the process
P. To overcome this issue. In that report, the Bank of Spain authorizing the conversion is justified in this that I have told this fact obviously that has to do with the valuation of the shares in Bankia BFA and also refers to the various problems that the audit firm has expressed on several occasions. There is a very significant paragraph that refers to these warnings, this hardening of the position of auditor. I wonder, however, do these two issues, both the valuation of shares in Bankia BFA as tax credits that were the problems that the auditor had said were not solved by the supplemental plan is approved on April 17?
R. Yes, but on May 7 another decision. Take another route that is to say here what to get, I think that is the way the Ministry, it seems to me that, well, makes sense in the destination, not how. That's debatable, the noise that is created and such. I mean, here you have to get is the capital, and a large amount of capital, and change the manager and point. It's another way of solving the problems of Bankia. It is a path that may have problems from the point of view of market confidence, especially since it was explained at the end and has not been good, but has a logic that seems reasonable to me.
P. But that is not the Bank of Spain, I understand.
R. It is the Bank of Spain.
P. Is different.
R. Yes, for all you need to do is to cooperate with that logic. The Bank of Spain, although not leading the way, has absolutely the idea of ​​cooperating with the Ministry in the new leadership of what he wants to do. And certainly not going to pick up and say, I did not convert the preference shares, that's crazy, right? What you need is to help solve the problem completely.
P. Have you considered at any time the Bank of Spain to open disciplinary proceedings to Bankia or any of its directors by the events that occurred? I say this because the CNMV specifically has opened disciplinary proceedings. Does that has arisen has been discussed?
R. Not that I know of. We do not know then. While I've been to, no.
P. No further questions. Thank you very much.
Judge.: Don Eduardo Barrau, please do not repeat, took two hours and peak and ...
P. With the permission, represent, defend the interests of certain shareholders who are following the March 2012 exchange of certain products, preference shares and subordinated shares in Bankia shares. So the questioning will be about these issues, I say in order to approach the issue. Let's see, are a loan preference shares, subordinated debentures, loan institutions receiving investors?
R. It is a title that has the characteristics you have, which is that it is somehow subordinate after the capital, has limitations and such, is a title ...
P. But within titles can be considered a loan. When an investor buys a security, is lending money to the entity?
R. It is a preferred share, as defined.
P. Does the Bank of Spain participates ultimately authorizing the issuance of such securities?
R. No, you see, the division of powers in overseeing financial matters is very clear in Spain. The Bank of Spain is concerned with what we have had, and I will not repeat, you have to deal with fewer interventions, try to go and avoid problems, and therefore solvency, risk control and such. Investor protection is, and so said the president of the CNMV, the CNMV. And it is important to keep these two different things. Therefore, investor protection, the authorized brochures or whatever, because I do not know, is a competition of the CNMV. The Bank of Spain has no competition.
P. But I do not know whether it has to you that an issue or redemption of certain securities, including preference shares, also requires approval from the Bank of Spain.
R. No, what worries the Bank of Spain, to my knowledge, in the preference shares is simply classify them in order to consider how the various components of solvency.
P. In case you did not know, we inform you that, for example, we go to the semi-annual report of the issuer of the preference shares of Bancaja ...
R. It will be a matter of procedure, it is not an important issue, in so far as it may affect capital ... but I certainly do not think it's an issue that what matters here, and I understand that you defend investors, is the investor protection. And of course the Bank of Spain does not go there.
P. Neither ask nor I will ask for the marketing of these products. I'm wondering if you know or do not know if in respect of such products, the Bank of Spain has in the first instance or ultimately about redemption, participation. If you do not know ...
R. Depreciation can have it. I tell you that in recent years has not been an issue that has been important, and can have it. But let's see, I think it is important the issue of depreciation for the purpose of something that has to do with the protection of investors.
P. Computed? Preference shares and subordinated debentures as institutions' own resources?
R. That until a certain time. All hybrids, one of the major changes that are occurring and the crisis, is that what you see is that this type of hybrid really does not serve as absorbing capital and serves to absorb losses forgiveness, as served capital. And then, in the past somehow does give importance to these shares and subordinated. But all that is disappearing, removing leaves, and I believe that the current law is not even considered in the definition ...
P. Let's see, my question is very simple too. Since 2003 there is a law that clearly states what the computing requirements of such products ...
R. We are there in full Basel II, when somehow preferred shares and subordinated is something you create.
P. Well, but the question is simple: computed from 2003 these items when they were perpetual?
R. Sure, in some kind of ratio, for sure.
P. When I have asked about the loan, which actually did not answer, can you say that one of the ways of financing of these entities is through these values?
R. Yes, but there is a type of loan. It is funded, it is a type of financing. Also financed actions, but not a loan.
P. Could this justify this double benefit? That is, it is a means of financing credit institutions and, further, that the funds are captured computed as capital, could that have justified the massive placement of these products on the market?
R. That I think is partly what is done to avoid the incentive that may be, I do not know what would have, is what is done to remove the preference shares. That is, to avoid having ...
P. A optimization abuse of this product?
R. No, what you do is try to prevent it being used, because what is discovered ...
Judge. Yo, excuse me. To go to economics class let another day. The witness is here based on what he knows and knows, depending on their positions, not to explain what kind of products is one, the other or beyond ... We made a little ...
P. Honor, is that it is important to fully enter into what is the exchange, the supporting ...
Judge. Come in. (Laughter in the courtroom).
P. Very well, your honor ... Let's see, do you know on what terms the exchange took place March 2012?
R. I do not remember exactly.
P. You know what was a double operation? A buyback of two values ​​...
R. Whatever you say. The important thing is that it was something of a way to get resources, right?
P. Why get resources and, say, the capital requirements that were demanding?
R. Responded a little EBA requirements. Are you talking of Bankia, right?
P. Does the Bank of Spain was aware of the alarm that was being generated by these products, which had thousands of investors trapped in an illiquid market? That was a notorious fact, is it true? At the time of the exchange was clear that the market ...
R. But what is it that you ask the swap?
P. That at the time before the exchange, in March 2012, was a circumstance ...
R. But what is the question of the exchange?
P. If you think the exchange offered by Bankia was respectful that situation existed ...
R. But it was a voluntary exchange, right? You do not understand, do not know, uh ...
P. You know if the publicity issued to investors when they advertised this exchange ...
R. Investor protection in the Bank of Spain has no power.
P. Could have been from the Bank of Spain some protection to these investors who were caught ...?
R. The Bank of Spain has no jurisdiction.
P. Therefore, it is not recommended, nor supervised? ...
R. Bank of Spain is not your competition. It has, as you will have seen today, many, but not that.
P. So, what if you made up other banks offered some alternatives or solutions other than just shareholders investors make?
R. Each entity looking for a way to cope, and still looking, and now the government itself, nationalized institutions, are looking for solutions ...
P. Was a solution to his view wise?
R. No I will not give my opinion.
Judge. No need to give it. We continue with another plaintiff. Don Juan Ignacio ...
P. Please the Court, Your Honor, I will try to focus on facts and rules and compliance. I represent 15 shareholders of Bankia. You spoke before the interbank dried. How long have you known to the Bank of Spain since the Lehman Brothers has hindered access to the wholesale market?
R. I think this is common knowledge. Since the summer of 2007 there are some movements, say in the sense of problems in the interbank market, but Lehman Brothers is that not only affects the interbank market, Lehman Brothers is a global cataclysm. All type of financing banks suffer greatly, right? Well, that must have been in September, because practically after that the world changed radically.
P. Is that lack of funding the central bank replaced immediately or decisions adopted by the governments?
R. Decisions were made not only by central banks, but also by governments. For example, the Spanish government ordered funding, created a body, I do not remember what it was called, had created in December, which warranted emissions banks, boxes and such, to try to avoid liquidity problems were being created. But all that has been constant. Throughout this crisis has consistently been important problems of bank financing.
P. He spoke about the problems caused by Lehman Brothers, initially Spanish banks Bankia and specifically, which is the entity of which we are speaking, had few toxic assets ... This is a bit complex, because I want to make a clarification. I assume you know everything you are mortgage securities, bonds and financing in the wholesale ... Our laws, basically continental, all that goes with reference to public records, ie a bond loan are referred to each well. The Bank of Spain, given what I understand about Lehman Brothers, there is no toxic assets, but have been sold several times the toxic assets, since Americans do not have records, did knowledge of losses real that occurred in Spanish banks, Bankia specifically? I say that because the bankruptcy is 430,000 million and not all creditors around asking a restoration thing.
R. If there was something good over this crisis is that when you look at the Bank of Spain and an analysis, because the Bank of Spain was also securitization, but securitization was good, serious, not CDOs, not picking this piece, in black and making triple A. The Bank of Spain that was very traditional and absolutely forbade all such assets. Especially important thing here is not who is issued but who signs it. And also the advantage, in quotes, is that Spanish banks and savings banks were giving mortgages ... Then, when the Bank of Spain for analysis after the bankruptcy of Lehman Brothers affected ... That what toxic assets are virtually inconsequential amounts . Just remember that there is a major credit union, which had hundreds of millions of euros, and that we published a little to give the impression that this was not the problem of Spain.
P. That's why I asked the question. To be clear that the Bank of Spain has effectively controlled all the losses that have said they are real ...
R. A request was made to all banks to find out what problems they had and it really was a very limited and in fact that was communicated in a way, because the international community, when banks were falling like the English, so it was a message that Spanish banks have nothing of this. Then you had to work with the government because, although they have, here is another problem that is ours, that is the bubble.
P. One of the premises of the Bank of Spain, as you have been saying, is to avoid intervention. The intervention is far a bit, but is very close to what a bankruptcy. The Bankruptcy Act does not prevent bank failures or entry into banking competition. So, from the point of view of economic policy, it may be reasonable. But someone has done the calculation of the costs of a bankruptcy of any of the entities within the group Bankia. We estimated the rescue attempt, but has anyone done a contest forecast?
R. No one comes to mind not Bankia, but a small stool, drop. Really, when you look at the Bush policy, the great disaster is catching and say, well, with a somewhat liberal ideology, we'll let Lehman Brothers fail, because in addition to most of the investments are Europeans and such. That unleashed the tsunami. Immediately ends the policy and integration policy does. It is true that there was attempted, but the president of Lehman Brothers with great pride refused. And allowed to fail. The bankruptcy of a bank does not make sense. Say a small bank in a situation that there is no crisis. But imagine that leaves Valencia break the bank. The government made a calculation of bankruptcy, but the liquidation, and that had left 4,500 million euros to save the cash and 12,000 million settlement. Have you considered the effects of distrust that can be created.
P. Have not you ever raised the competition?
R. There is no thinking about it. Of course in this crisis left only a small bank breaking. It is not, or even notice, in England, the English governor, which is a lower rate, for a moment dropped the idea when Northern Rock and it organized the first-run bank since 1800-something. It's devastating. So there are funds deposit guarantees ... In the years tell me an example that a country has dared to do what Lehman Brothers. Nobody, nobody, States have to save money immediately and say you have the windows and the bondholders have their money and such ... Shareholders obviously know they can lose the item if there is a problem.
P. Regarding the problems of Bankia, liquidity injections are justified by the royal decrees to give credit. My question is ...
R. To provide liquidity.
P. So effectively, if the 19,000 million have been injected ...
R. Ah, says the now? Is now the capital.
P. Capital?? That credit if there is no ...
R. Solvency, liquidity immediately, because if they give me 19,000 million ...
P. The question is ...
R. Your Honor, if I believe that I should not talk about anything that has made the Government from May 7.
Judge. You have nothing to talk about what has not intervened.
P. The question was whether it knows if the money is still here, or has entered and left, in order to ... I do not know, right? (Rumors).
P. I will insist, in the Bank of Spain nobody thought bad bank intervention would have benefited the rest of the banks and would have been cheaper. The question is are there any studies of alternatives?
R. I do not understand the question.
P. The contest dismisses you for absolutely impossible.
R. Yes.
P. The intervention is a step a little less drastic than the competition. And I wonder, does the Bank of Spain at some point intervene raised the possibility of Bankia to not cause more suffering to the rest of the banking sector?
R. As I have explained before, the idea of ​​the legislator is to try to avoid interventions. Everything is treated with Bankia is to avoid having to intervene Caja Madrid and Bancaja, but give them the chance. Integration is an opportunity, then lost for the reasons I have given before. The bank's obligation is to give it a try. Imagine that we want to do this integration, receiving public money to start more integration and the Bank of Spain says: 'No, sorry, I hope you have not become members and such'. It is nonsense, do not fit on the head, because you have to do is try to avoid the problems. But as integration has become somewhat curiously negative ... it is hard to know.
P. Who decides recasting the deposit insurance funds, does the Bank of Spain or the Ministry?
R. Are the funds themselves, right?
P. Is that idea out of the Bank of Spain, but the Ministry?
R. This idea comes from the Ministry, but I must say that this idea is very good. Because it can allow you to pour the FGD somehow costing the taxpayer less, that was what he had in his head the previous Government.
P. Clearly something has gone wrong accounts, someone made a mistake.
R. You can also change the context and that is wrong is the one who made the forecasts.
P. Is it possible the falsity of a bank account without the Bank of Spain to detect it?
R. Well as all possibilities. Everything we've seen of irregularities and illegality there ... but, man, you're pretty covered, it is analyzing the quarterly balance sheets, there is an auditor who verifies ... Obviously, of course I could have, but in principle I think the legislation is cautious, is the sense of being able to give a reliable account, he sees an auditor, it also is deposited at the CNMV, that is approved by the general meetings, I mean that there is a process of accounts in the Bank no part of Spain, although the Bank of Spain accounts cares, right.
P. The process Bankia IPO is a process that allows the law to get more capital and avoid intervention. According to the accounts, someone should have given the need for capital ...
R. He had to step ...
P. Well, after departure. What I meant ...
R. Let's see, in the IPO the main attraction is obviously the CNMV.
P. Yes, but I do not ask for the investor, I ask for the number.
R. The role of the Bank of Spain was not to oppose, and makes. This is a topic that only if there was a problem, not control or know what I say, I ask, as had been used, but this is even a possibility. To see how unimportant the Bank of Spain in this responsibility is delegated to the Director of Supervision, ie not even on the Executive Committee took that decision. The role of the Bank of Spain was the fulfillment of Royal Decree 2/2011. So there, what the Bank is: first, in March, we took the entire list of 100 entities and if they fulfill the decree, and which do not comply and need to solve it. They are 12 entities and communicates to the world that world that this list is Bankia, which needs capital Bankia. It's not something we guardásemos for us. But then are the entities that decide as recapitalized, and the royal decree basically gives three ways. The first option is: "Look, that between the FROB, because I'm not going to take chances," which is what makes Caixa Catalunya. Or say, "I will seek outside investors," which makes one or: "I go bag", but that is a decision of the entities, knowing that Bankia everyone needs that money and going out to bag, then that is what the Bank of Spain ...
P. That is the question, how much money needed Bankia?
R. I think the minimum was 1700 but finally ended in 3000, the figure is public, in a note published in February 2011. Bankia had two problems went public because the law said if you have a few outside investors or IPO, no need to provision more than 8% of the capital. If you do not have these investors, is 10%. So Bankia had two figures to provision, one that should be obtained 1,700 million if investors, and another that was almost 5,000 million if he entered the FROB. But what I say is that the concern of the Bank is to be capitalized. If you decide to go public and get it, well, that's their decision. The market is well aware, the CNMV explain to shareholders the risks having his project, and the Bank of Spain had already said that this man did not comply, and he had to comply. And if you are looking for outside investors, and not get them, that is, if it fails, as it was in agreement Bankia, the FROB. Because the message was being given to the world, again, was very good. The confluence of the recapitalization of banks and reform of the pension fund, which was also very good, leading to the risk premium to 160, and now we would like, then, the obsession of the Bank of Spain is that banks are capitalized ...
P. So the question was, is published the decree establishing the margins of capital ...
R. They are left to entities ...
P. Yes, they are left, but time passes. With the losses accumulate, logically these capital needs grow, you need Bankia 1,700 million in February ...
R. The significant deterioration ...
P. I'll summarize. Did anyone think the Bank of Spain: "Well, have fallen short"?
R. No, because I think it took 3,000 million, which was above what they should get.
P. So what?
R. I think not. As the deterioration you tell me, Bankia goes public, what bad luck, when everything is growing and out of the 2009 recession. And just when you leave Bankia, mid-summer, starts deteriorating sharply in the Spanish economy that has not stopped since. The deterioration, when beginning to show, is in the second half of 2011. A significant deterioration also because until then all forecasts say that everything was going up. All, without exception.
P. And then, the capital needs of March 2012, which also required the Bank of Spain ...
R. There is sanitation. Fundamentally capital reorganization, if not demands of the European Banking Authority, the EBA.
P. Bankia late March issued 1,900 million new shares.
R. That is that the European Banking Authority, under pressure from U.S. analysts do not want to see that Europe's sovereign debt rating to 100%, since you are paying a higher interest rate than the market. Then, the EBA makes banks calculate the impairment on its investment in sovereign debt, and says: "That I have to capitalize." That is only five or six Spanish banks, among which is Bankia. Bankia That does primarily through the conversion ...
P. Well, and also attracted money from private investors ...
R. Well, but primarily by the conversion. In any case, I remember that in March the group met the requirements of the EBA.
P. Not them to stay short on the stock exchange, is another thing, a legal change.
R. Sure. The IPO also allowed Bankia spend another stress test, the 2011. If I had not also have had past problems.

P. Let's talk about auditing the accounts of Bankia. With BFA creates a kind of matrix, a kind of bad bank that took the blows, if I have not misunderstood.
R. I do not think that's it.
P. Would it have been something if BFA bankruptcy, or is operated and had been left without intervening Bankia? I do not understand the close relationship between the two, because it is assumed that there is a spin-off: supposedly, the good part of the business and bad Bankia to BFA ...
R. Every time I think of letting a bank fail, and BFA was, makes me chills come.
P. Not go into political disquisitions, but states that have not left bankrupt banks have failed themselves. Greece, Portugal ...
R. It is a theory that no one has implemented, except somehow, in Iceland, which is a relatively small economy. And, to say no paid to creditors, in Iceland has made a distinction: no pay other than the Icelanders.
P. I'll stick to the facts. The December 31, 2010, while operating the SIP, but there has been integration, the seven boxes which then became Bankia (Caja Madrid, Bancaja, Caja Canarias, Caixa Laietana, Caja Rioja, Caja Segovia and Caja Avila) have 340 million in profits, while equity outflows show actual of 7,501 million euros.
R. I do not understand that expression, "equity".
P. Funds are those entities are reduced by 7.501 million.
R. That's because in large part, I suspect, part of the provisioning of these entities are charged to reserves ...
P. The equity.
R. ... So the money is going to accrue reserves entity, but that money is in the bank.
P. It is in the state, but is decreasing, then we can say that they are real losses, right?
R. No, it has nothing to do. Pears and apples.
P. That is, to submit accounts with benefits, despite deteriorating asset, was covered by the accounting standards.
R. The FROB Act, to the extent permitted by sanitation reserves decrease as long as no equity beyond what is acceptable, allowing is precisely not to losses. You say: "How despite reduced equity has benefits?", When it is precisely to reduce the equity that, in part, has been profitable. Same thing. In the end, what matters is that from the point of view of solvency, from the point of view of the Bank of Spain, the money is in the bank.
P. From an accounting point of view, yes.
R. The Bank of Spain is what is the distribution of dividends, especially at this time, is the minimum possible.
P. Obviously, in the year 2010 there was something those equity diminish significantly. And above all, as shareholders are concerned ...
R. What you see on the display is "capital losses", but what is done here is to move from one part to another part of the liability liabilities, reserves for supplies. That means that somehow it is covered. And that increases the chances of making money in the future. When I make an excess of provisions, that's pretty typical, means that this year I will go out bad accounts, but not for the future, and that's typical of the manager. The possibility is that in the future I will give benefits to baskets because I will not have to provision.
P. My charge is on behalf of shareholders who are interested in whether there was irregular IPO from the point of view of the information displayed to potential investor ...
R. Yes, but with investors, we have nothing to ...
P. Yes, if I understand that. But the investor trust accounts that oversees the Bank of Spain. Could not have misled the present consolidated accounts ...?
R. But if it's all in the accounts ... I do not understand, anyone reading the balance knows what ...
P. Indeed, reading and comparing balances: in 2010, totaling 8,500 million entities in equity, and in 2011, together in BPA, had 1.075 million.
R. Excuse me for saying so, making the approach you are doing why equity fall, as is to be consistent ...
P. It's not consistent, what I am referring ...
R. Makes no sense ... ...
Judge. Let the witness finish.
R. Thank you, Your Honor. It makes no sense, and you continue with that theme.
P. What I say is that there is a deterioration heritage ...
R. I have said all I had to say about this topic. If I understood well, and if you do not understand, too.
P. Well, something else. The March 20, 2012 meeting occurs to approve the accounts BFA-Bankia both as members of the boxes. Did you know that the auditor of Caja de Canarias caveat noted as very important asset deterioration in the accounts of the insular entity?
R. That's what I said. The news reached me Oversight is that the auditor had no exception with scores of Bankia, that serious problems were in BFA. That's all I know.
P. How long have you know that the Bank of Spain?
R. The problems the auditor with BFA are valuing Bankia and the issue of (...) tax. And that's the information received by the Bank as a supervisor, talking to Bankia and probably with the auditor. That is the information that, as a witness, I can give.
P. The supervisory board of the Caja Insular de Canarias not endorse the accounts of 2011, and that it informed the Bank of Spain.
R. That information I receive it. It is true that it is something that you might not know the answer, look, it says the Supervisory Board, but the issue is that something and is determined not know how. To me have, say, how fat. That, of course, do not remember, but sure to have an explanation.
P. I say this because the president of the Caja de Canarias has stated here that there was a meeting ...
R. Reply to everything ... but ...
Judge. If you are unsure, do not insist ...
P. It's another related question. Supposedly, the four principals of Caja Canarias met with the leadership of the Bank of Spain in October 2011 to inform that. Are there minutes of that meeting?
R. Excuse me, Your Honor, but the work of a governor, I'm sorry, is far beyond knowing the minimum incident happens in all cases. I do not know if that meeting has occurred. Have you had the lieutenant governor here, he could have asked.
P. Well, I do not know, that's it.
R. Not that I remember. If there has been, and I had been told, would understand. It seemed prudent to supervisor, whatever, tell me, but I've always had the feeling of being well informed about relevant things. I have no complaints from supervisors or supervisory team. I've made decisions on that information. So if you have told me that or is that not right ...
P. So, did you know that meeting? No? That's it, I give answered. No further questions.
Judge. Lawyer? FROB?
Counsel. No question, Your Honor.
Judge. Prosecution??
P. Please the Court, Your Honor. Good afternoon, Miguel Angel. When told that among the recommendations made for further professionalization include change management, are referred to President Rato?
R. Yes, in terms of its powers. We believe that: he had been saying to President Rato long, I on occasion, it was a very capable person, who had been managing well, even cuts had done well. But that was not the person who could take to the bank. You know some things and do not know other things, and is perfectly respectable. And for two years, even before the IPO of Bankia, the Bank of Spain reiterated: 'Look, Francisco Verdú is a professional like the top of a pine, but that is not the person who can lead the country's fourth largest bank '. What do you think the Bank of Spain? We do not always think of noise. Do not try to make Rato to go away, because we thought he could have a very strong market. Do not ever ask. What we asked is to cede full powers who came. Because obviously, anyone who would put at the head of the country's fourth largest bank is not willing to have a president who will abridging. Therefore, we asked that the new manager had full power to change the management team and the board change to professionalize and that was in tune with the new address. And that's when it was working. But obviously, there was another class of managers who wanted more power. And that's what I was talking on the 4th of May. We must admit, we had no idea resignation as while because we thought it would convulse markets.
P. Does the idea was for him to be as CEO, or executive?
R. No executive. And the appointment of a chief executive officer with full powers.
P. He said that this was discussed at the meeting on May 4. Do you remember when first raised Mr. Rato?
R. We talked a lot with him, and I say, this was a constant thing. I remember a conversation I had with him. Again, almost all took from Supervision and Deputy Governor. Sometimes I'd say, "Let me do something" because they did a very good job, arduous work during these three years. And I had other things to do, had to go to Frankfurt ... Only when they saw they had a problem that did not come out, it was very few times I called. I spoke with Mr. Rato, and was a bit delicate conversation, because it is in this sense: "You have been a good minister," well, I had criticized while in the country with respect to the bubble, but on that subject better not to talk, because I thought we were going to lead to disaster. But others think it is a respectable and respected. But we had to convey that no, it was not the right person.
P. Do you remember the approximate date of the interview?
R. This, more or less, I've been talking to him a long time. The last the twenties April 2012, that I returned from a meeting in Frankfurt. I do not remember the exact date.
P. Those first conversations with subordinates, when were they?
R. Well, subordinates ... at Director of Supervision.
P. Yeah, well, below you.
R. Yes, below me, but high level.
P. These meetings, when they do first? 'Even before the creation of SIP?, When was Caja Madrid?
R. No, I think mainly occur after the merger, when it is Bankia. And somehow Mr. Rato was passing us that yes, he would, and actually reacts with the appointment of Verdú. But in the month in which Bankia already sealed, demonstrate to the markets that there is a decision to put money in the bank, put a full-fledged manager and executive chairman Rato was an important ingredient we seemed to reassure markets.
P. You mentioned a list of people who understand you Mr. Rato suggested that could fill the position of CEO. Remember how many people would be on that list?
R. I think that this list would have like four people, no more.
P. Did Mr. Verdú was among them?
R. No, Mr. Verdu not. I can hardly speak of Mr. Verdú, because the relationship I had with him, and everything I've seen, I think it is an excellent professional. But Mr. Verdu came to be (...) president of a stool, excellent, by the way, but that has thousands of employees and thousands of offices. We had to look for someone who had been in one of those.
P. The idea of ​​requiring a change of manager, departed? Bank of Spain? And if not, whose left?
R. No, came the Bank of Spain. In the first council presiding Goirigolzarri he admits that the first approaches to see if they could take over Bankia is the Bank of Spain. But I think we have seen that the government, say, agreed with the Bank of Spain.
P. But that was because the Bank of Spain had sent to the Government these efforts, the list of people you handled?
R. Sure, we told them that we were working on that basis, of course.
P. So much the current government and the previous government?
R. I have said that on the issue of professionalization of management, when we consider that it was something that could not wait much longer is, say, this year.
P. You said that this requirement had been raised with the beginning of the efforts to create the SIP

R. Later.
P. Did the previous government was aware of this need for change management?
R. I think so, because until they decided to stop at this ...
R. With the previous government ... and with all governments, we used to sit and lieutenant governor to the minister and the secretary of state every two weeks to talk. It is a matter that calls into question the independence of the Bank of Spain. No central bank more independent than the German, and its president sits on the Council of Ministers. One thing is to be independent, and another not maintain good relations with the government, which has to be very close, very close. Anyway, I remember having discussed this issue with the previous government, because we talk about a range of issues and this was not a priority. We discussed mostly Decree Law 2/2011 and the Law of the FROB.
P. If I understand you correctly, met with Luis de Guindos following the resignation of Rato and praised the appointment of Goirigolzarri. Would the minister explained the reasons for the cessation of Rato?
R. Neither me nor explain anything I asked. I had the courtesy to tell you what I found most favorable decision, which was the appointment of Goirigolzarri. The meeting was mainly to discuss the decree that the minister wanted to take the next Friday, and we offered our cooperation. And, on why Mr. Rato ceases, I've said here several times, and, sorry, there was a cessation, was a resignation. He said that, on that, I can not say anything or testify because I know nothing, I read in the press.
P. Did you meet reformulated accounts sent Mr. Goirigolzarri in late May?
R. When I sent them yet. And so it was decided that both accounts is like asking money would be studied carefully. What happened is that just then starts the whole subject of the rescue and the stress test of Oliver Wyman, which postpones all. I think when the general meeting approves the accounts is already the end of June, when I am no longer.
P. One last question. You commented that it is a good practice manager make as many supplies as possible.
R. This is usually done.
P. Is that what you did when reformulated Goirigolzarri accounts?
R. I did not take the decision on the 19,000 million. We did have a small exchange to the Executive Committee on that subject. The Bank of Spain, and after the change, was working with smaller figures. But what we think is going to look at it from the point of view of maintaining confidence. Probably, in late April, one might have discussed whether they could be 3,000 million or were 15,000. But he had fallen, had all the sense in the world to give a backup image. Do not make a decision, we had an exchange of ideas. Remember what it was that May, as had been sunk and Spanish banks Bankia. There was a brutal distrust in everything, and you think that things change and think that could be right. Nor analyze, nor do we decide, the decision was taken by the new administration, and I'm sure there will be decided well.
P. I ask as a coach: in this context to give the best possible view of Bankia to create confidence in investors and markets, the fact so profoundly change the figures in the financial statements, could not create a negative image of the action too of previous managers and create the opposite effect?
R. Man, there has one auditor warranty. Is that the auditor understand that (...) I was gone, I do not know if I can talk, but if it looks good to the auditor, the information coming, but the accounting has changed, not that there's been a deterioration, is there have been some issues that have occurred after 2011 and there should be charged, and, if I may your honor, I'm sure if it has been approved by the Bank of Spain is that good.
P. No further questions, Your Honor.
Judge. We start with the defenses of the various defendants. Does Bankia defense?
Advocate. No question, Your Honor.
Judge. Does BFA defense?
Advocate. There are no questions, Your Honor.
Judge. Does the defense of Don Rodrigo de Rato?
P. Please the Court, Your Honor, briefly, very good afternoon. A clarification of his testimony. There is an agreement of the Executive Committee of the Bank of Spain on April 17 under which approval of the plans submitted by Bankia. A report was submitted in advance by the Directorate General of Supervision. Mr. Ariztegui explained yesterday that the report would have been, of course, subject to debate. Do you remember that the findings of this report were taken by the Executive Committee?
R. It was assumed that it takes the minutes of the Executive Committee. That is, for the case of Bankia, is not approve what is presented, is to approve what occurs if you do certain things. The vision we have is what brings us Bankia is incomplete. Should complement and complete. And that is what we allow.
P. In one of the conclusions raised to the Commission says, and I quote: "In these conditions as described, we can consider that the recovery plan meets at 31 March 2012 as set out in Royal Decree-Law 2 / 2012 as a whole takes steps considered sufficient to meet the sanitation coverage required by the standard, both in the aspect of supplies to be, as in the additional level of principal. " The question is, it says here the General Oversight those plans are meeting regulatory requirements?
R. It says in the report, yes, but the Executive Committee approves other things. It asks you to do all that, but also other (...) things.
P. That is, what is asked of Bankia is that this "well" is above the regulatory framework.
R. Yes, because the Bank of Spain and the Executive Committee can not apply without a decree. They have to worry about the solvency of Bankia, and restore confidence in the institution. We say: 'You will comply, but brings me more (...)'.
P. I ask, because he is asking Bankia, and also in a short space of time, to expedite the submission of plans, you can no longer do it for May 31. You have to make an effort in the shortest time possible to project into the more demanding regulatory framework over ...
R. Look, from what I've read the draft, Bankia really makes an effort, because they were talking about making a further consolidation of the order of 8,000-odd million, this draft could never discuss or approve, because as of May 7 switched to something else.
P. Therefore, and linking it with what the prosecutor said, change management, were you being resolved?
R. That's what we thought on May 4, he was talking and that Monday would see. But on Monday changed everything.
P. Therefore, saying that there was a way to solve, does this mean that there was a principle of generating confidence that things would work out and that could be made?
R. Of course, that's the idea. But I can not say that the draft that's what he asked the Bank of Spain because the Bank of Spain, the Executive Committee's me. And that did not see, in fact, I was in Basel. The impression I received is that it was making an effort, and that on the issue of giving the powers, Mr. Rato was making an effort too, had spoken with Goirigolzarri, well, that could be achieved in a gentle way. That's the impression I had.
P. Bankia had until May 31 to submit their plans, but suddenly, in his own words, was to accelerate the process. Why?
R. Fundamentally, because on 26 April or so rating agencies lowered two levels of solvency to the Kingdom of Spain, which produces a stunning shock. It was not only the non-resolution of Bankia, which could play a role among analysts, but then the reflux of not having taken a budget until April 1, there was a perception that the Government was serious about the deficit ... It was a tragic situation for the Kingdom of Spain. Interestingly, not from the point of view of Bankia and the banking system, whose problems came later, but urged Bankia resolve the situation as soon as possible, because what we are seeing: the worse the image of the Kingdom of Spain, the worse for banks.
P. That was what made the calendar.
R. Yes I believe that was it, accelerate.
No further questions, Your Honor.
Judge. Does the defense of Mr. Olivas?
Advocate. There are no questions, Your Honor.
Judge.: Does the defense of Mr. Verdú?
P. Please the Court, Your Honor. Very good afternoon. A brief and concise questions. You seem to have fairly complete references and Mr. Verdú, so I will not ask if you already know. The fact is you are sued and I have to defend him, so I will try to be concise, forgive me if I seem a little abrupt, all that said since the utmost respect for him and the most prestigious of his career. On the qualification of Mr. Verdú, I transmit a certain puzzlement: is this is the first time I hear that the Bank of Spain thought Mr. Verdú not have sufficient qualifications. I have not seen or heard of any defendant, no reports, no paper. (...) You say you had a list, apparently, in which Mr. Verdú had not, in his opinion, the most appropriate profile, because he had been a director of a "bench", Banca March, one of the entities more solvent. Why do you think Mr. Verdú not have the skills to manage Bankia?
R. I barely know Mr. Verdú. When I'm saying opinions, I'm doing mine the opinions of my services. I manage a central bank, but I do not really know what those qualified to run a bank. What passed me services, and I think so, and I convey to you, is that Mr. Verdú is a qualified person, but what is missing in Bankia, the great potential of Bankia, is driving a large bank . And Mr. Verdú, according to the direction of Supervision, is honorable, capable, has been very good in the bank, in fact, if you could remove it from "bench", I would, but it's a small bank. So what is believed Supervision is not the right person, he has been in various banks, but never on an important responsibility. And this is what it conveys. I believe that in fact Mr. Goirigolzarri offered follow, and many others, so my opinion seems to share Mr. Goirigolzarri.
P. Did you felt that way since he was appointed in July 2011?
R. That view itself. A Supervision frustrated him, somehow, that what he had asked Mr. Rato ... And he says: "I have appointed Verdú", without asking, it was not the person who asked the bank.
P. That was not reflected anywhere.
R. That is not reflected.
P. Mr. Verdu continues a year there, and no one will say anything. Upon approval of the recovery plan and strategic plan. It is supported mean, preceded, accompanied as you want, for a report of the services themselves the Bank of Spain on April 13 which has been referred to earlier. You say that the executive committee approves of that report what is on the record that it approves of course I have no doubt, because otherwise it would not be in the minutes. I wonder how the rest of the report was also considered at the meeting of the executive committee and not manifested or compliance committee with the rest of the report.?
R. Is the rest of the report was to say that all that part was not what I thought it should be done in a way that seemed reasonable at the time.
P. So I ask that for the following, because the rest of the report, on page 10, it soars Mr. Verdu at all, and it is said that the CEO is considered efficient, is considered excellent, which is considered reasonable, I will not read paragraphs because everyone here is reading paragraphs and reports and can read your honor, are on page 13, and it literally says the CEO has a plan. That, you remember well that they talked about that.
R. In addition, there is another paragraph that was interesting and that from the point of view of what is raised in the report for the first time praised administrators had realized what they had to do and that is put into a paragraph saying: 'For the first time we see that they somehow have realized the fear and have shown to be somehow do what they should do.' That has nothing to do with the assessment of a person with what you can do or not do. A person may hold for one thing, be good for something and instead not be true for another. I would not try to diminish the qualities that also in the relationship with the bank were wonderful, they were very good. If I want to hear him say this, but I can say that it did not seem the right person.
P. You will then not seen any contradiction. It's what he wanted to do, a very typical question of questioning I have to do. These expressions of praise no restrictions on the plan of the CEO and the management team, here if you read two words literally. Says the report: "The management team understands Bankia and it has shown with determination you can manage successfully Bankia as the economy recovers. It is considered accurate and realistic measures are encouraging. " So says the report you say that seemed acceptable to the executive committee. And that you do not see any contradiction with that failure you still evident in the profile of the CEO.
P. When I asked about that paragraph, I will say is that so far it was not clear. It was clear that they had to do this plan. Now they obviously have to do this. And that is an issue somewhat favorable.
R. Very well. I wonder too. I will not insist much. Do not worry your honor. It is a recurring theme but I have no choice. But there is a problem I want to try and clarify understanding. The sense of the last seven lines of the letter of April 17 that are literally the last seven lines of the report that supports it April 13. It is known that if the approval of the recovery plan and strategy is conditional or not conditional. Because you're saying, I did not argue, I say this with the utmost respect. Not refute that. Forgive. You say: 'Look what we tell ourselves is: you propose these measures are good, but they are insufficient'. That is not said, or are incomplete. That is not said. No says simply. Not what I value. No says. Then come seven lines that says you have to do additional measures. Then I ask. Does that paragraph what value is, because I do not know, is a condition that is worth everything else is incidental, is essential?
P. Else if not better, what happens is that you have to do besides this.
R. And if I had, what would have been worth more?
P. For one thing you are in breach of the executive committee. I think that unfortunately and I think it has little value because it has blown up. This is not over the way it should have ended.
R. If we know how it ended. We are trying to find out why and finish.
P. I just wonder if you can answer me. Because he was the governor and he was in the executive committee and approved by that. It was the sense I had that paragraph if it was fitting, or it was an essential condition.
R. It was what he said. You have to do this ...
P. Do you dare to call it a condition?
R. I do not know because I do not know if that condition is called. For me it is complete. I want you to do this and I have no problem with what you say above, but also want to do this. Because at this time is essential to accelerate sanitation. Is essential.
P. Fundamental not said.

R. We do not believe that is an issue that is not important because otherwise we would not have put. Simply, we had adopted as the rest of the plans.
P. Do not you find you a certain lack of support that the report of the agreement that are 20 pages in the 14 pages are positive and only those seven lines contemplate additional measures? Do not you perceive there a kind of contradiction or tension in the sense that they have less importance or not you think that was as important as the rest of the agreement?
R. He was aware that the above there was nothing to say or put in question and such but it lacked something that certainly seen as crucial, if not essential because it does not get heard. An agreement of the executive committee on Bankia either because it believes that doing so is ...
P. You considered it important, the plan of the bank and that it was essential. It's what I wanted to hear. Very well. Perfect. That's the answer. Sorry to ask a question rather abrupt. Why not put so clearly that they considered essential? Because it puts. Or essential or decisive.
R. A governor says he will intervene. If I tell you to do, is to do so. I do not know that most fundamental and such. That has to.
Judge. I think it is clear enough.
P. His lordship has much merit in considering the case.
Judge. For me it's pretty clear. Go to another topic.
P. You said before that you authorized the plan, because it actually say who authorized the plan, that is not discussed. And you said literally that would have been absurd to say they did not authorize the plan.
R. I think it would have been absurd.
P. Why would have been absurd? I want a clarification only. Do not worry.
R. What was a key issue say, again, was what impact does this have on the markets. This is something you do not see and sometimes politicians make a decision and not fixed. The Bank of Spain is taking in every decision he makes what impact it has on the markets and indeed all his rules going in that direction. Why not publishing the requirements? Well, because people would panic, because all banks every day, in the 294 executive committees, I believe that there is a bench that we have not made requests. They read out by an expert not seem "poor risk control something and do not know how many €" well here everyone runs to get the money from the bank. That is so. I think clearly, talk and such. We do not approve the plan because it does not have this and this. No, we approved the plan, but we tell him to do this.
P. But could not you have told simply without any transcended: 'Look, this has me so far is insufficient, more guarantees introduce me to pass the plan'. Could you have done this without problems?
R. But the image, since we had passed all the plans, saying that all plans have been approved pursuant to Royal Decree-Law, etc., to say that it has been approved but not Bankia has approved ... Perhaps erroneously believe ... Notice which was organized later. It is to be tempted clothes to make a decision.
P. Very well. If you think your honor impertinent or not you can answer me. You then April 17 approve the plan but asking these additional conditions, have the courage they have. Do you actually what happened is that they had reservations about the feasibility of Bankia?
R. No.
P. Did not. Very well.
R. We had not been reached or when Goirigolzarri. And everybody. If you are serious plans, management changes, gets money, etcetera. That is, is always what we are seeing. As before with Bancaja. You thought you had problems? Well we thought we had no solution if Bancaja was alone. But if you get into an integration is done, close offices, of course. It's what we thought.
P. Very well. You know, they learned that came out in the press of the International Monetary Fund report which spoke generally April and Spanish banks had an expression that may seem to refer to Bankia, did you have knowledge of that report?
R. No knowledge. This report is based on the Bank of Spain is all done with the Bank of Spain and the report has everything and also clearly reflects, and me is what I liked the report, which was saying the Bank of Spain since the Bank of Spain wanted to make the first stress test. You remember that we said in an annual report that we do a stress test did then we got into Europe and Europe's, but the first supervisor who says you have to do a stress test is the Bank of Spain. Because it was that everything would work out well all but the obsession of the Bank of Spain is that large institutions have remained absolutely solid with high rating and ability to access the market. This is the most important value. If the truth that we have here a tumor that can fix this is the best message. And this is what comes out in the first and stress test them out again, Bankia with problems, CAM, I do not know why, the same, the usual, the usual suspects. In 2010 at the IMF as a test for Oliver Wyman back out the same. So, this was important because they had lost other countries and that Spain has not lost yet and hopefully not miss is that the big banks are, fingers crossed, absolutely solid.
P. Did you know a brief statement of the Minister of Economy, Mr Guindos, in a press conference the Council of Ministers published by Reuters on the occasion of the report, saying that as a result of that report, some entities did not say which needed more sanitation. Do you remember that statement or have forgotten?
R. Yes I remember. The issue was that perhaps reinforce the theme on the downside it was not the best but come on, that was obvious, was correct. Right from the point of view of what.
P. I'm going to finish this before the May 11 report. And then just everything. To mark the IMF report does the Bank of Spain took a special measure, some report, the executive committee met, considered it necessary to send new requests to an entity?
R. It was just as I thought the Bank of Spain. If that analyzing entities practically said what we said, praising the whole building process ... and kept saying negative IMF report is that it was very slow, which was right. And somehow gets a note from the Bank of Spain saying is true that it has been slow, we will see why it has been left absolutely boxes all powers to the regions, we have tried not to spend money, there a number of reasons leading to the process is slow, it is absolutely right.
P. On this information that led to you expressing doubts about the auditor on the accounts of BFA. Can you clarify this a little more information about who was coming.
R. The information I get is that the auditor had no serious problems, but mainly with Bankia ...
P. I wonder if you could say who gave him that information.
R. Who? As would be either the director or the Deputy Governor supervision. I can not say.
P. Can not you say? Were informal conversations?
R. I spoke with the people who was the director of supervision and lieutenant governor are speaking with. Note that when the former deputy governor, Mr. Viñals, goes, I do what I ask in view of what I see is to come is that the lieutenant governor is the former director of supervision, that is, you have to concentrate to bank in this task. And the people I've been. Yesterday was here. I guess I would ask for these things.
P. I did not ask anything. We will end now. On May 11 report that you have already identified. Very briefly too. Do you see that does not exist here, or could be seen a contradiction of judgment or a substantial change, rather than contradict, not contradiction, is a substantial change in criteria between what is reflected in this report and this is reflected in the April 13?
R. Total. That is, the May 7 opening another topic. Bankia is collapsed market has collapsed, is spreading to the rest ... When Mr. Goigolzarri calls the conversion [of preferential shares], which should not doubt the Bank of Spain or two minutes is to accept it. Not to accept it, is not formal term, because then the actual conversion occurs, I think, on June twenty.
P. Would you say that the total change of mind, one of the possible causes is the second recession which has been mentioned earlier, quite accurately?
R. The exchange, mainly due to what I am saying, that is not going by way of negative absorption plan ...
P. One reason, it is not the root cause.
R. I see nothing that causes the deterioration of assets in Bankia. That cause is, I think the failure of Bankia, which is obvious, is due to two issues. One, which Bankia can say that it is responsible, which is the deep deterioration that occurs, but otherwise, not the management has changed, you do not get a higher mark, get some benefits ... are still in a situation the Bank thinks it's because we need a professional management.
P. Was not there ever in this report and is the penultimate question, any plan by the Bank of Spain and, excuse me, because the question is a bit abrupt, to justify a little foresight or errors that have been committed in the previous phase ?
R. In committee, I think not
P. No?
R. No, I think that was the issue that opened another horizon and the Bank of Spain should cooperate as much as it seems reasonable to Mr. Goirigolzarri and the Government.
P. Right. It's my last question. If you feel well, do you ratify the statement as he did Mr. Verdú here and if you can confirm here as an expert, and if not, nothing happens, that in the early summer of 2012 there was a downturn in the economy tremendous that had not been anticipated by any analyst?
R. I think you should say that, I agree, but that occurred in the fourth quarter and 11 in the third quarter of 11 and look, until now.
P. But also the first quarter of 2012, you think so?
R. That is something that occurs mainly unfortunately with bad luck that works in this life, since goes public, not before. But since leaving, suddenly the economy starts to deteriorate.
Judge. Does the defense of Jose Manuel Fernandez Norniella, Don Arturo Fernandez and Javier López Madrid, Juan Perez hazuki?
P. There are no questions, Your Honor.
R. Did Mrs. Araceli Mora Anguilanos?
P. With the permission. Don Miguel Angel I will focus on three or four very specific questions in order of their declaration. I would like to ask, even though this is clearly beyond its competence, its high competence as governor, if we can briefly explain how the inspection the Bank of Spain in any organization and in the specific case of Bankia. Given the volume of that entity understand that there are leading inspectors permanently in the state. These inspectors, broadly, what is up, what is its purpose?
R. I think it is and I will not repeat it now, on the website of the Bank of Spain I asked her to hang a bit how the Bank of Spain and this is explained and is very long.
P. Well, then consult the website of the Bank of Spain. Precise time on this question, I understand that the Bank of Spain inspectors what they will do is analyze credit files, among other things, right?

R. It aims would have to reiterate. If you read it there is no problem. An instrument of the Bank of Spain is the inspectors and the objective of the Bank of Spain, which has to do, is to try to avoid having interventions. He can not help as the police can not avoid having robberies, crimes, etc.. But also has the advantage of dealing when seeing that things will not go the way reasonable to see if it has been given the right information and such. That requires analyzing balance sheets, talk to each other, be not know what ...
Judge. We will realize, if you please.
P. These inspectors Bank of Spain relationship and treatment, I understand, both near and fluid with the internal auditors of the entity that deals with the internal control, as with the external auditor. Is this correct?
R. I'm sure they are related. I do not know how or if you know how. If they give me the information that I am getting is that they will have some connection or through the inspector. Let's say that this is an issue that I think is a topic to talk and see between the inspector and auditor. I think these issues should be seen well.
P. This question comes up, Miguel Angel ...
R. But anyway, if I may, Your Honor, speaks as if the inspectors ... The address is full supervision of inspectors and there are a host of tasks and many of these tasks, there are some that do one thing, others do another. There are some who analyze not know what, there are some that are in situ, others going to Basel to change the regulations, there is a body of work and many of these tasks not only do inspectors. As I said before, for the calculation of risk models that are approved in Basel, which are enormously complicated, I've come to understand, it takes mathematical, statistical ...
P. I understand, I've given up the detail of that question. I asked what was the relationship that may have these inspectors stationed in a particular entity with internal audit and external audit of the entity in the order of 11 May report which have been referred to above, which report make some explicit remarks about what the auditor's opinion on Bankia Bankia financial statements ended 31 December 2011. Opinion, which as you know, takes a long time until a restatement of the accounts on May 25. This report is dated May 11 and in this report, indeed, for Bankia is said to not contain any exception and that in any case, perhaps an emphasis paragraph related to deferred tax performance. That information ...
R. That is what the bank thought. I say what the bank thought. I do not know how that information is generated. It's what we moved. I do not know how to generate that information so you have to talk to the auditor, with the manager. That is the information in any way that conveys to the executive committee.
P. That is transmitted to the executive committee as well as the auditor transmits it to the inspectors of the Bank of Spain working in Bankia.
R. That I did not know. To me comes up. I do not know how it occurs. What matters to me is that it is important and it is important to know exactly which topics Bankia somehow had not major problems. If the auditor now comes and says yes, it will be so.
P. I want to finish you another question that has to do with the changes in the rules that makes the scheme provisions and writedowns during the first quarter of 2012 and specifically the Decree Law 2/2012 and Decree Law 18/2012 which in turn results in the modification of Circular 4/2004 of the Bank of Spain on two occasions. These decrees, uniquely, it is coming to establish an amendment to the provisions regarding real estate loans because of the damage that can be seen in the market situation. The question, very simply, is this: Does this legislation has the character of prospective or retrospective application? That is, these requirements impose additional provisions that both Decree 2 and Decree 18, can we refer them to the year 2012 or would refer them to the accounts of a financial institution closed by December 31, 2012?
R. Look, from the point of view of the Bank of Spain, which have to do is perform. From the point of view of whether to place it in the accounts of one year or another have to go ask the auditor's judgment. But the Bank of Spain, you put it before or after putting it, the important thing is you have to make those provisions.
P. But for us, Mr. Governor, it is indifferent whether to December 31, 11 or ...

R. For the Bank of Spain, which is concerned about solvency. I understand. You can say no, so, so be it.
P. No
R. I mean that from the Bank of Spain, it is important that provisions are made. Then, we have to see what criteria have been applied and what accounting principles.
P. With respect, I think that is not answering the question.
Judge. Yes, if you answered. Do not agree with your answer. It will not be what you expected. Right.
P. What I ask then. I will finish, sir. What I ask then, when the modification of Circular 4/2004 of Bank of Spain Circular 2/2012 of 29 February on account of Legislative Decree 2/2012 states that according to the provisions of paragraph 6 of the Rule 8 of the Circular 4/2004 as amended by this circular on the criteria for determining the necessary coverage for the risks will apply prospectively and initial effect will be part of the profit result 2012. What does this mean, that the decree 2/2012 applies prospectively or retrospectively?
R. What he means is that it is considered, which considers the Bank of Spain, is that in terms of expected losses was necessary to make some important provisions. So we tell the Ministry and the Ministry for the decree. I believe that if you want me to bring the change in accounting method, after me or anything because I've been occurs later and I have not seen, that the auditor approves one thing and that is retroactive and such, what I think. I'm not going to give my opinion.
P. I'll ask for an act to end. Policy changes introduced in 2012, these have just quoted, Decree Law 2/2012 and 18/2012, all the entities that make up the Spanish financial system, do have carried their statements ended 31 December 2011 or are applying or have applied in the year 2012?
R. I do not know.
P. You as governor of the Bank of Spain did not you know?
R. I do not know. I guess that is well done, it will be doing well. Because I do not know how to convey that I care as governor of the Bank of Spain is the solvency and sanitation entities. One can say that the auditor does one thing and does another. I think the Bank of Spain, do not know, maybe also the Bank of Spain in the new administration has seen have been restated accounts and have a say. We did not see is that the reformulation of accounts. That is, we did not see all this you are saying.
P. I'm watching not ask much of the restatement of accounts as long as ...
R. What are you trying to say is if I feel good that they put back
P. I'm asking if you think good or bad
Judge. Do not argue with the witness.
P. Well, no more questions.
[The judge asks the other defenses if they want to ask more questions and all other state that no questions. Terminating the session]

 

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