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Rodrigo Rato: exiting through the revolving door

The former head of the IMF and Spanish economy minister has just landed a job at Telefónica, despite facing a judicial investigation into mismanagement while he was chairman of failed lender Bankia.


Rodrigo Rato

Doing nicely: Rodrigo Rato has landed a job with Telefónica, despite the legal probe into his handling of Bankia.

Given Rodrigo Rato’s previous form and his current predicament, the news that Telefónica has appointed him to the advisory boards of its European and Latin American businesses raises new concerns about transparency and corporate governance in Spain.

Rato – who has also served as head of the International Monetary Fund and as Spain’s economy minister – will help “reinforce the global vision of Telefónica”, the country’s largest telecommunications company said after announcing the appointment on January 4.

Readers will remember that it was Rato who oversaw the privatisation of Telefónica back in 1997.

Rato’s hiring by Telefónica comes less than a month after he was summoned before a Spanish court in relation to allegations of wrongdoing during his tenure as chairman at state-rescued lender Bankia.

Rato, ousted from Bankia when it was nationalised in 2012, and 32 other Bankia board members are the subject of an investigation into fraud, price-fixing, and falsifying accounts.

Bankia was formed in 2010 from the merger of seven unlisted savings banks, led by Caja Madrid. Rato and other executives, under political pressure, listed the company in 2011. On May 9, 2012, the government nationalised Bankia, bailing it out to the tune of €18 billion.

Rato appeared in a private court hearing on December 20 and denied any wrongdoing. Investigating magistrate Fernando Andreu has, so far, not brought charges against anyone and could still drop the case, which was brought to the High Court by the political party UPyD.

Born into a wealthy family in Asturias, Rato knows a thing or two about the ups and downs of banking. His father, a fervent supporter of dictator Francisco Franco, headed two small provincial banks, but was jailed in the late 1960s for salting cash away in Switzerland. But the general pardoned him in 1971, allowing him to recover the family fortune.

That year, Rato earned a law degree from the Complutense University of Madrid, moving to the United States to attend the University of California where he completed an MBA in 1974.

After the death of Franco, Rato joined the Alianza Popular, a grouping of social and political conservatives founded by former members of Franco’s last government and the precursor of today’s Partido Popular (PP). Rato won election to Congress in 1982.

Fourteen years later, the PP came to power after cutting a deal with the right-wing Catalan nationalist party Convergència i Unió (CiU) to obtain a ruling majority.

Rato became economy minister in the government of Jose María Aznar and embarked on a campaign to get Spain into the euro zone.

No friend of the welfare state

To reduce the budget deficit below the 3 percent required by the European Central Bank to allow Spain to join the single currency, Aznar’s government froze civil servants’ wages and cut public works spending. By 1999, the deficit had fallen to 1.4 percent of GDP from 4.8 percent, when Aznar became prime minister.

Once Spain had adopted the currency in 2002, the country boomed. Rates plunged, and Spain’s construction sector effectively took over the economy.

During this time, aside from supporting the making of religion a compulsory subject in secondary schools, Rato worked hard to erode the gains made in creating a welfare state between 1982 and 1996, dramatically reducing social spending as a way of eliminating the public deficit and overseeing the most austere social budget of any EU government.

The elimination of the deficit came at huge social cost. The Spanish welfare state was already weaker than its EU counterparts. During Rato’s time as economy minister between 1996 and 2004, pensions and health expenditures were cut savagely: the deficit with the EU-15 average increased to 21 percent, while the deficit of public medial care expenditures to the EU-15 rose by 30 percent.

When Rato was given the job of running the IMF there was some puzzlement. The agency has a history of appointing managing directors for their political expediency rather than their credentials for the job. Rato’s main strengths appear to have been that he is European, and a European has always run the IMF, that Spain supported the war against Iraq, thus guaranteeing Washington’s backing, and that he was from a European country that was neither France nor Germany, which had provided the last two IMF bosses.

Rato took over as managing director in May 2004, two months after the PP lost the general election, only to resign three years later, half way through his tenure, on the eve of the global financial meltdown.

Last year, a veteran economist at the IMF accused the global lender of suppressing information on difficulties in dealing with the global financial meltdown and euro zone crisis.

In a resignation letter to its board and senior staff, dated June 18, Peter Doyle said the IMF’s failures in issuing timely warnings for both the 2007-2009 global financial crisis and the euro zone crisis were a “failing in the first order” and “are, if anything, becoming more deeply entrenched.”

The IMF has acknowledged some of the failures cited by Doyle in reports in 2009 and in 2011 that homed in on mistakes in spotting the roots of the global financial crisis during Rato’s tenure and for not going far enough in warnings to policymakers of the impending crisis.

Shareholder value

Meanwhile, the only option open to savers and pensioners who have seen their money wiped out by investing in Bankia is through redress in court rather than waiting for an increasingly unlikely official inquiry.

About 350,000 stockholders will share the pain of the bank’s European bailout, many of them bank clients who were sold the shares through an aggressive marketing campaign for its stock market flotation in 2011. Bankia, alongside other Spanish banks, sold billions of euros in preference shares and subordinated debt to high street clients, many of who say they were tricked into parting with their savings.

Neither of the two main political parties want to push for a full investigation into Bankia’s demise, which could draw attention to their own role in a debacle that has driven Spain to the brink of a full international rescue.

Bankia has been removed from Spain’s IBEX-35 blue-chip index until the results of a recapitalisation are clear. Its share price has tumbled 83 percent over the past year.

With a record like this, it’s hard to imagine why anybody would want to give Rato any position of responsibility, but then Telefónica’s boss César Alierta and Rato go back a long way. In 2000, when Rato was Economy Minister, he put Alierta’s name forward to take over from Juan Villalonga, who had fallen out with Aznar.

Of course Rato’s sinecure is still far from secure, and much depends on how the judicial investigation into Bankia develops, and how the media cover it.

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Published: Jan 14 2013
Category: Business, Featured, Spain News
Republication: Creative Commons, non-commercial
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4 Comments for “Rodrigo Rato: exiting through the revolving door”

  1. Well, they say that the devil looks after his own.
    Once again failure is rewarded in Spain and the ‘Old Pals’ club is self supporting.
    Urdangarin, of course, is also an employee of Telefonica, although on a sabbatical at the moment. It’s no wonder the firm has problems with people like this and the people who appoint them, at the helm.

  2. A full economic rescue for Spain might be a good thing in the long run as its terms would go a long way to sweeping aside the inherent corruption and vested interests that cruelly deprive Spain from achieving its full potential.

  3. Rodrigo Rato’s success is entirely appropriate for our times. Just because someone is incompetent and corrupt doesn’t mean he shouldn’t be rewarded generously for loyalty to his friends. Aznar’s other friends – mean and nasty types like Villalonga – deserted him, but Rato has always been true.

    I’m going to start a petition to have him made a Marqués, like the Marqués de Villar-Mir. He got his noble title for agreeing to buy 20 million Bankia shares at €3.75 a pop, shares which he now uses as toilet paper.–101457/

    If you can get a noble title for agreeing to buy 20 million worthless shares, what will you get for selling nearly a billion of them? Duke Rodrigo, I bow to you.

  4. Just digging around a little regarding RR. Wonder why none of the Spanish media digs around on this case, the stuff is out there and easy enough to find. I suppose there are a lot of corruption cases, but I think this one is worth ten minutes trawling around the internet to check.

    First, RR and Lazard investment bank (NY). Lazard was RR’s employer from 2007 to 2009. Then when he was made Bankia boss he had to choose a bank to direct the IPO (and get the commissions). Lazard was chosen, but RR didn’t choose them, he says:

    “En otro punto de la declaración el juez instructor, Fernando Andreu, ha preguntado a Rato por sus relaciones con el presidente del banco de inversión Lazard en España, Jaime Castellanos, que se encargó de la valoración de las acciones cuando se produjo la salida a Bolsa.

    El expresidente de Bankia ha indicado que la elección corrió a cargo del director financiero y el Comité de Medios de Bankia, que él no intervino y que, a pesar de todo, entiende que no se produjo “ningún conflicto de intereses” en esta operación. “Nos conocemos pero nunca he tenido ningún negocio con él”, ha dicho.”

    But of course that’s a bit of an enormous whopping lie, isn’t it RR?

    En un escrito remitido el pasado 9 de enero al Juzgado Central de Instrucción número 4, UPyD recordaba que Rato declaró ante el juez que la elección de Lazard Inversiones corrió a cargo del director financiero y el Comité de Medios de Bankia, que él no intervino y que, a pesar de todo, entiende que no se produjo “ningún conflicto de intereses” en esta operación.

    La formación ‘magenta’, que solicita al juez que pida el expediente de contratación con Lazard, recuerda en su escrito que Rato “ha sido socio de Castellanos en diversos proyectos de inversión inmobiliaria e incluso constituyeron una sociedad juntos dedicada a dicho fin, aprovechando en su propio beneficio las oportunidades de negocio que puedan surgir”.

    The name of the business which RR founded and ran in conjunction with Lazard Spain boss Jaime Castellanos during the period when he had no contact with him whatsoever was Paracuga SL, a property development firm which has since been wound up. The two partners – though they never spoke or had any contact, according to RR – managed the business successfully during this period.

    Well, however that may be, Lazard was chosen to manage the Bankia IPO.

    Their total fees and commissions from this operation are at present unknown.

    Now Lazard is very nervous that their Spanish operations, and associated operations in Bermuda, will be exposed in the Bankia investigation. In fact the firm has packed its bags and is ready to get the hell out of Dodge (report from 26 November 2012).

    “El banco de inversión Lazard podría tener las maletas echas en su sede madrileña de Serrano 32 para irse de España… Algunos incluso creen que su partida en un momento en que investiga cada uno de los papeles de gobierno de Bankia sería poco menos que desacertada…
    Por si fuera poco, la relación de Lazard -una entidad con sede operativa en Nueva York pero con los cuarteles centrales en Bermudas- fue el destino del mismísimo Rodrigo Rato tras su precipitada salida del Fondo Monetario Internacional (FMI). Los antiguos ‘contratantes’ del exministro español no estuvieron disponibles para comentar esta posibilidad de forma inmediata.”

    RR is certainly very nervous about this Lazard connection, taking the huge risk of lying flat-out in his denial of any contact between himself and his business partner Castellanos, a lie that was easily exposed. And Castellanos is nervous enough to have packed up ready to blow the country at a moment’s notice.

    Something cooking there, methinks

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