Bank of Spain rescues Banesto: Banking crisis looms as central bank ousts chairman and directors

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The Independent Online
IN A MOVE that sent shock waves through the country's banking system, the Spanish central bank, the Bank of Spain, said yesterday it had taken control of Banco Espanol de Credito (Banesto), one of the nation's top six private banks.

It said it had ousted Banesto's charismatic 45-year-old chairman, Mario Conde, and his entire board, replacing them with a provisional administration under the central bank's overall control.

Although the Bank of Spain promised to 'guarantee the liquidity of the institution in the domestic and foreign markets, adopting the necessary measures,' the move looked certain to trigger a banking crisis in Spain, which is in the grip of recession.

'The reason for taking this decision was that a shortfall in equity at the bank was detected in the last few weeks and it was felt the existing management team was unable to cover it,' Alfredo Pastor, Secretary of State for the Economy, said. A key factor was a decision by JP Morgan to postpone until next year a dollars 400m issue of subordinated debt. Bank of Spain inspectors had also detected a much worse picture on non-performing loans than had been thought.

Spain's biggest private bank until Banco de Bilbao and Banco de Vizcaya merged into Banco de Bilbao y Vizcaya in the mid-Eighties, Banesto's profits had steadily declined in recent years. It had stopped dividends this year and warned that they would not be paid out for another two years.

But the high profile and charm of Mr Conde, a self-made Galician who instilled fear into the country's Socialist politicians every time he hinted at entering politics as a conservative, appeared to delay the bank's problems.

Noted for his slicked-back hair, designer ties and suits, he took control of the bank in 1987 on the basis of a huge profit he made by selling the Antibioticos pharmaceutical concern to Montedison of Italy.

The size of his profit in the Montedison deal raised eyebrows here. Banking sources yesterday wondered whether information emerging in Italy's scandals may have prodded the Bank of Spain into action.

Mr Conde's name had also been mentioned almost daily recently in connection with an illegal wire-tapping scandal in Barcelona. Police said they had found a dossier about Mr Conde while detaining the alleged wire-tappers, including several former agents of Spain's military intelligence service, Cesid.

Earlier yesterday, the National Stock Market Commission suspended quotations of Banesto stock on the Bolsa, the Madrid stock exchange, after the price plunged by more than 5 per cent in hectic trading. They had fallen by more than 10 per cent on Monday.

The central bank said it had taken its decision because Banesto's situation 'made necessary the adoption of sanitation measures that it could not take isolated and on its own but only with the support of the banking system.'