15/02/2014 by Don Quijones
Given the sheer scale of their recent betrayal, it is tempting to tar all bankers with the same brush. Indeed, in today’s vernacular the words good and banker read like impossible bedfellows.
But hard as it may seem, there are still a few good apples out there (though their numbers are falling precipitously). They include people who actually honour their fiduciary responsibilities and care about providing their customers with a good service.
This is the story of one of them, a middle-aged Spanish man called Antonio Goméz Ortega.
Until not too long ago Goméz Ortega was the manager of a branch of Caja Madrid in Linares, a small city nestled in the upper reaches of Spain’s Southern province of Andalusia. In many respects he was a branch manager of the vieja escuela (old school) — dedicated, hard working and well regarded both by head office in Madrid and many of his local customers.
However, in the latter of years of Spain’s construction bubble his relations with head office and his customers began to sour. The reason was a financial product called preferentes (preferred bonds) which Caja Madrid’s head office was pressuring all its local branches to aggressively sell to their customers.
At first the Linares branch took to the task with unbridled enthusiasm, selling 2.2 million euros worth of the products in the short space of a few months — no mean feat in a city of just 61,000 people. According to Goméz Ortega, the message from head office was unequivocally reassuring: despite offering much more attractive rates of interest, the preferentes were not only as safe as houses but were perfectly liquid financial instruments. Customers would be able to cash them in in the short space of 24 hours, Goméz Ortega was told.
It was, it seemed, a perfect win-win for all sides involved. Customers would get juicier returns on their savings while Caja Madrid would get much-needed liquidity at a time when, unbeknownst to most employees below senior management, the bank’s massive exposure to Spain’s slowing property bubble was beginning to create serious problems on its books. As for branch staff and managers, the more preferentes they sold to customers, the higher the commissions they earned.
However, as with many perfect win-win scenarios, somebody had to lose along the way. In this case it was the bank’s customers. Within a year of selling the products Goméz Ortega and his staff began receiving a flood of complaints from customers that they couldn’t offload the instruments.
The European Central Bank had just decided to reduce the Euribor rate, with the result that the yields offered by the preferentes bonds also went down. As a consequence, the financial instruments lost some of their luster and with demand for the products decreasing, customers suddenly found themselves holding extremely risky subordinate debt products that could only be exchanged for cash by reselling them on the open markets — markets where supply was now suddenly greater than demand.
With many customers having invested all their life savings in these products, it didn’t take long before fear turned to anger, the brunt of which was borne by branch managers like Goméz Ortega and his staff.
“The biggest incident was with a client who had acquired 300,000 euros worth of preferentes,” Goméz Ortega told InfoLibre. “My family and I were threatened. I called my regional director, who told me time and again that the product was 100 percent liquid for clients and that the problem would soon be solved. But still nothing happened and the threats continued to come thick and fast.”
At one point Goméz Ortega was even threatened at knife point. In the complete absence of support from the regional or head office, he decided to take matters into his own hands, first by crediting some customer accounts with money from his own pockets. “In one case… I ended up paying between 400 and 600 euros of my own money. I did it to get the client off my back… The client didn’t even realise it was my own money.”
He then took his case to the highest level of the bank’s hierarchy, by phoning Miguel Blesa, then CEO of Caja Madrid. Like Goméz Ortega, Blesa was born and raised in Linares and the two had even shared lunch together on a couple of occasions.
“He told me not to worry and that the problem would be solved straight away. The next day emails began pouring in from across the organization and the problem was quickly solved,” said Goméz Ortega. The unwanted preferentes were sold to another Spanish bank, Banco Popular, at 97 percent of their original value, with the result that customers were finally able to recover most of their savings.
Once Bitten, Twice Shy
With the dust finally settling at his branch office, Goméz Ortega decided to take his foot off the preferentes pedal:
From that moment on I advised all my clients to get out of the products… I effectively cut off the secondary market in Linares, and I refused to sell any more preferentes to customers. The bank had an organisation-wide software program for the sales of the products and in the case of Linares it showed that there was not a single buyer.
However, by deciding to warn his customers of the risks posed by these financial products — products that were designed for the exclusive use of highly sophisticated investors and should never have been sold to savers — Goméz Ortega had unknowingly set himself on a collision course with head office.
The bank’s reaction was as brutal as it was swift. At the end of 2006 it dispatched a team of auditors to the Linares branch. A few days later Goméz Ortega was summoned to Madrid for a meeting with HR, which duly informed him in no uncertain terms that his contract had been terminated. No reason was given.
For his part Gómez Ortega believes his dismissal was directly related to his decision not to sell more preferentes to customers. “I was viewed as a direct impediment to the banks’ sales campaign,” he recently told Spain’s radio station Cadena Ser.
In the knowledge that at his age it would be almost impossible to find new work in a different sector, a desperate Gómez Ortega sent Blesa an email urging him to overturn the decision. He never received a response.
Goméz Ortega was sent packing. For his part, Blesa remained at the helm of Caja Madrid until 2009. Despite clear evidence of the risks of the preferentes products — in April, 2009, two rating agencies, Standard & Poors and Fitch Ratings, warned that the outlook for the products was “negative” — he and his board decided in 2009 to launch their biggest sales campaign yet.
A Financial Bloodbath
Admittedly, Caja Madrid was not the only financial institution to sell the products. In the global liquidity drought that followed Lehman’s collapse and in the wake of the bursting of Spain’s property boom, Spanish cajas and retail banks were desperate for cash — and preferentes and other similar complex instruments provided the perfect source of quick easy money.
But no other bank sold as many dodgy debt instruments as Caja Madrid. Between 2009 and 2010 it offloaded close to four billion euros worth of preferentes and other hybrid debt instruments on customers. Just as happened in 2006, customers were assured that the products were both low-risk and 100 percent liquid. And just as in 2006, it was a bare-faced lie, a gargantuan confidence trick designed to entrap the bank’s longest-standing, most trusting and most vulnerable customers, in particlar the elderly.
In 2011 Caja Madrid was fused in a cold merger with six smaller Spanish savings banks to form the Bankia group. Under the reverse midas touch of former government minister and one-time IMF president Rodrigo Rato, it took less than one year for the new entity to collapse under the strain of its own debt and toxic assets.
When it went under Rato walked away with a cool two million euros stuffed into his designer briefcase, while hundreds of thousands of preferentistas were left holding the bag — a bag filled with worthless paper. To this day, most of their money remains trapped in limbo. Yet, as I reported in “Portrait of a Kleptocrat“, Rato’s star continues to rise. Like Blesa, who has already been sent to prison twice on charges of accounting irregularities and fraudulent practices as CEO of Bankia, Rato has the perfect temperament and moral judgment and fibre to survive, thrive and make it in today’s banking industry.
The same can not be said, of course, of Goméz Ortega, who languished for six long years on the dole as punishment for daring to put his customers first. In 2013, he finally received a position in local government after retraining as a civil servant.
Like every parable, The Parable of the Good Banker illustrates a clear, instructive lesson. In an industry that has embraced criminality, rampant confidence trickery and moral failure as its operational cornerstones — not just in Spain but all over the world, in particular on Wall Street and in the City of London — only the most deeply flawed and disturbed individuals can survive and thrive, especially at the top. The demons quite literally run amok while the good folk are spat out.
The results are plain for us all to see.