From Don Quijones at wolfstreet.com:
Bilked Investors, including the US government, are furious.
Spain’s two biggest bankruptcies ever, Bankia (2011-2012) and Abengoa (2015-?), share one thing in common: their auditor.
In both cases, the New York-based big-four firm Deloitte was responsible for making sure the financial statements fairly represent the financial position and performance of the companies, and that they conform to the accounting standards. Turns out, the accounts were as crooked as they come.
Both companies ran aground. Investors in the US and Spain got bilked. The US government got stiffed. And now it seems the auditor may actually end up paying a hefty price for having “seriously” infringed Spain’s account auditing laws.
Zero Independence
In the case of Bankia, Deloitte was not just the bank’s auditor, it was also the consultant responsible for formulating its accounts. As El Mundo puts it, first Deloitte built Bankia’s balances, then it audited them, in complete contravention of the basic concept of auditor independence.
Given this deeply compromising set-up, it’s hardly any surprise that Deloitte (together with Spain’s market regulators) was happy to confirm in Bankia’s IPO prospectus that the newly born franken-bank, which had been assembled from the festering corpses of seven already defunct saving banks, was in sound financial health, having made a handsome profit of €300 million just before its public launch in May 2011. It was a blatant lie: in reality Bankia was bleeding losses from every orifice.
But the lie served its purpose: 360,000 credulous investors were lured into buying shares in the soon-to-be-bankrupt bank. Another 238,000 bought “preferentes” shares or other forms of high-risk subordinate debt instruments being peddled by Bankia’s sales teams as “perfectly safe investments.”
Almost all of those people would end up losing most of their money, as the value of Bankia’s shares nose-dived spectacularly from €3.50 a piece to €0.01. Now, five years later, the bank’s duped investors are finally beginning to claw back some of the money they lost, thanks primarily to the limitless generosity of Spain’s unconsulted taxpayers, who have already stumped up tens of billions of euros to bail Bankia out.
As for Deloitte, it was found by a recent investigation to have ignored at least a dozen glaring errors in Bankia’s accounts. The company had to pay a €12 million fine for “seriously” infringing Spain’s auditing laws, but that hasn’t stopped it from continuing to audit the state-owned bank’s books. No, seriously.
To continue reading: Deloitte About to Pay for its Spanish Sins?
