Top executives at Spain‘s giant nationalised Bankia are to be ordered to pay back last year’s annual bonuses as the bank admits to having run up record-breaking losses of €7bn (£5.6bn) in the first three quarters of this year.
The size of the losses, the biggest ever reported by a Spanish bank, was revealed on the same day that recession-hit Spain also saw unemployment rise to above 25%. Some southern Spanish provinces are now reporting unemployment at almost 40%.
Bankia will tell its executives to return the money in response to a petition from the European commission, which says they should not have been paid bonuses just months before the bank admitted it needed €23bn in bailout money.
“We have received the instruction via the Bank of Spain and, effectively, those people will have to return their bonuses,” a spokeswoman said.
Bankia did not say exactly how much former Bankia chairman Rodrigo Rato, who is also a former president of the International Monetary Fund, and the other 71 executives, received.
“Some had been paid the money already, but others had not,” the spokeswoman said. “The vast majority are still working here, so their cases can be dealt with internally.”
The bonuses were agreed in April when the bank claimed 2011 profits of some €300m. But auditors refused to sign the accounts and the bank eventually recognised a €3bn loss.
That helped tip Spain’s banking sector over the edge and saw the government ask for a eurozone bank bailout. Banks are now expected to take some €40bn of the €100bn on offer, with Bankia accounting for more than half.
The losses reported on Friday came after Bankia set aside €11.5bn to cover losses on toxic real estate that will soon have to be transferred to a Spanish “bad bank” as part of the bailout.
Net profit at Spain’s third-biggest lender, Caixabank, fell 80% to €173m as it, too, recognised real estate losses. The Santander, Popular and Sabadell banks have also this week reported falling profits from balance-sheet clean-ups.
It was not clear whether any of the Bankia executives would refuse to pay back their bonus. Rato resigned soon after the 2011 losses were first made public and waived his right to a golden handshake.
Spain’s government has since capped salary payments to executives at state-rescued banks.
Bankia is at the centre of the storm that has swept through the sector as it struggles to cope with billions of euros of bad loans given to real estate developers and land speculators.
Created by the merger of seven savings banks, or cajas, Bankia is evidence of considerable consolidation in the sector that analysts say is set to continue.
The 45 savings banks that existed five years ago have now been merged into just fourteen, and analysts predict a new round of mergers could see that reduced to 10.
The unemployment figures showed that Three of the country’s seventeen regions now have more than one in three workers out of a job. They include southern Andalucía, Spain’s most populous region with more than 8 million inhabitants, together with the Canary Islands and south-western Extremadura.