MADRID, March 3 (Reuters) - The ex-head of one of Spain’s biggest troubled banks was questioned by a judge behind closed doors on Monday over the sale of billions of euros in risky investments to small savers, who then lost most of their money as the financial crisis unfolded.
High Court Examining Magistrate Fernando Andreu is investigating whether Miguel Blesa, ex-chairman of Caja Madrid, and other executives, duped savers into buying hybrid securities known as preference shares, sold as part of efforts to boost the bank’s capital and cover up solvency problems.
Some 300,000 clients of Caja Madrid and another lender Bancaja lost their savings in the preference shares debacle. Bancaja and Caja Madrid were merged in 2010 with five other savings banks to form Bankia, which became Spain’s biggest bailed-out bank.
About 100 protesters demanding Blesa be put on trial shouted and waved signs outside the High Court as the former banker entered for the hearing, which was closed to the public but was attended by lawyers for all involved parties.
The session comes after Judge Andreu had on Feb. 4 called Blesa and 14 other former Bancaja and Caja Madrid executives and board members for questioning at a series of hearings this week.
The judge has not brought formal charges against Blesa or other executives but has said there is evidence of possible crimes in one of the biggest probes stemming from a banking crisis that almost pushed Spain into a historic debt default.
The court made no comment on Monday’s hearing and Blesa’s attorney declined comment. Blesa, 66, has said he is innocent and that all financial instruments sold by Caja Madrid were approved by regulators.
Blesa - also under judicial investigation in two other cases, Caja Madrid’s controversial, loss-making acquisition of City National Bank of Florida in 2008 and for allegedly giving preferential terms on loans to a fellow member of the Caja Madrid board of directors - has become a focal point for Spanish anger towards the banking sector.
Tens of thousands of Caja Madrid preference share investors lost money in the 41 billion euros ($56.6 billion) taxpayer-funded bailout of banks undermined by a crash in the property market to which they had lent heavily.
Under the terms of the Europe-backed rescue, the value of the preference shares was cut by up to 70 percent.
Consumer groups, political parties and the Spanish ombudsman’s office have accused Caja Madrid and other banks of persuading unsophisticated investors to put their savings into the preference shares without explaining the risks involved.
In the earlier years of Spain’s financial crisis, in 2008-2009, before it was clear how badly the banks were ailing, they had sold billions of euros of preference shares as a way of converting customers’ deposits into capital, which made the banks appear more solvent.
Blesa was in charge when most of Caja Madrid’s preference shares were sold in 2008 and 2009.
The investigation could last for months before the judge decides whether to bring formal charges and put Blesa or any of the other Caja Madrid or Bancaja bankers on trial.
The government has given some smaller investors a chance to get their funds back if they can prove they were mis-sold the preference shares. Elderly people, disabled people and children are among those bringing claims against banks saying they were misled. ($1 = 0.7240 euros) (Editing by Julien Toyer and David Holmes)