A year ago, JP Morgan put its faith in Mario Conde, the controversial president of Banesto, in which the US blue- chip bank made the first investment of its new high-yield banking fund, Corsair. At the same time, it became Banesto's sole adviser for its huge restructuring plan, involving asset sales and a rights issue of dollars 1.2bn ( pounds 812m) - the biggest ever by a European bank.
But JP Morgan's plans and Mr Conde's spectacular career came to an abrupt end. The Governor of the Bank of Spain, ignoring a letter of confidence personally presented at the eleventh hour by Roberto Mendoza, JP Morgan's vice-president, fired Banesto's board and took control of the bank.
The Governor, Luis Angel Rojo, declared that a long-running inspection of Banesto's finances had revealed a further 503bn pesetas ( pounds 2.6bn) was needed to clean up the balance sheet. He also denounced the use of 'accounting tricks' by its managers. The situation had presented 'a very serious risk' to Spain's financial system, the Bank of Spain concluded.
The crisis is a blow to the reputation of JP Morgan, which prides itself on its banking judgement and is regarded by many as New York's best-run bank.
Dennis Weatherstone, the Englishman who runs it, has already distanced himself from the debacle, suggesting he was not kept fully informed by colleagues of what was going on at Banesto. But that has not stopped the criticism.
Corsair's dollars 162m investment is of dubious value, since the shares were suspended on 28 December. More serious for JP Morgan, however, is the suggestion that its judgement was seriously flawed. Only 10 per cent of the Corsair fund is JP Morgan's own money; the other 90 per cent belongs to its US investment clients. Many in Madrid and New York are asking whether, as Banesto's main adviser, JP Morgan should have been investing clients' money in the bank.
The biggest-selling Spanish daily newspaper, El Pais, reported that JP Morgan had made more than 5bn pesetas in banking and advisory fees from Banesto - considerably more than the dollars 16m it stands to lose through Corsair. However, a spokesman for JP Morgan in New York said the level of fees was 'overstated'.
Following the central bank intervention, moreover, some Spanish commentators are asking how the Americans could have been taken in by Mr Conde. A youthful, dynamic epitome of Spain's financial boom, the former head of Banesto was nothing if not controversial, with all the trappings of a tycoon set for come-uppance.
With his matador's figure, slicked-back hair and designer suits, he quickly became Spain's most glamorous financier. His yacht was identical to that of King Juan Carlos - with whom he sails each summer in Majorca - until, that is, he bought a bigger one. The gossip magazines reported excitedly on each new country estate he bought, and his personal fortune is now estimated to be pounds 150m.
As an aficionado of modern art, he has a collection that includes works by Picasso, Tapies and Braque. And as a measure of his own financial ambitions, he confessed that what he would most like to own was a Van Gogh.
On the other hand, since his sudden rise to fame, Mr Conde has been taken increasingly seriously across a wide spectrum. When he was made an honorary doctor of the University of Madrid last June, he addressed an audience including the King, the Governor of the Bank of Spain and Camilo Jose Cela, the nobel laureate, on the need to deepen Spain's democracy, quoting confidently from Bertrand Russell to Thomas Jefferson.
His speech was given more press coverage than most politicians could hope for. And in the previous year he took part in a conference at the Vatican on business ethics, and was personally thanked by the Pope.
Speculation that he would enter politics as the charismatic leader of the opposition People's Party was fuelled by his close personal friendship with the party's founder, Manuel Fraga Irribarne. 'It is not in my personal plans at the moment,' was Mr Conde's somewhat flimsy denial as recently as November.
He first burst into the limelight six years ago when - at the unprecedentedly young age of 39 - he became president of Banesto, traditionally the most aristocratic of the Spanish banks, after buying 4 per cent of the shares and forcing his way on to the board. Banesto was then suffering from a previous scandal involving Javier de la Rosa - who went on to advise the Kuwait Investment Office on its ultimately disastrous Spanish investments - and Mr Conde successfully defended the bank from a takeover by the Banco de Bilbao.
He comes from a modest background in Galicia but had proved to be a brilliant law student at the prestigious Jesuit university of Deusto.
He made his first financial killing helping to sell a friend's pharmaceutical business, Antobioticos, to the Italian conglomerate Montedison. It was a politically sensitive sale because Antobioticos was just the sort of profitable, modern business the Spanish government wanted to see grow.
It is still a mystery how Mr Conde succeeded in negotiating the high price of 58bn pesetas, and there is speculation that investigation into Italian corruption scandals may clarify it.
So far JP Morgan is putting a brave face on the Banesto disaster, refusing to admit any error of judgement. 'We think it is too soon to say what will happen, but we are watching the situation closely,' said the New York spokesman. 'Stay tuned.' He stressed that the fund is designed for special situations. 'You mostly have dogs which return little or nothing, and you have some which are very profitable.'
Rumours that Banesto and JP Morgan were no longer on such good terms were fuelled first by the shelving of the last tranche of the refinancing, a dollars 400m convertible bond issue targeted at foreign investors. Then came the sudden departure in late December of Violy de Harper, the architect of Banesto's refinancing, from JP Morgan to a competitor, James D Wolfensohn.
Following her move, Banesto retained Wolfensohn as co-adviser. JP Morgan denies that Ms de Harper left over a disagreement. The spokesman described her as 'a very skilled individual'. But a senior source at Banesto said a 'lack of harmony' between JP Morgan's New York team, led by Ms de Harper, and its Madrid office had aggravated the problems.
What is clear is that without JP Morgan's backing there would have been no rights issue, two thirds of which had been completed before the Bank of Spain intervened.
According to JP Morgan, Banesto's assets were overvalued by 372bn pesetas, more than the bank's 359bn pesetas of capital and reserves. But Banesto believed this could be rectified by the sale of assets and the raising of new capital. The Bank of Spain put its more pessimistic view down to an assessment of the creditworthiness of the bank's small loans - those under 750m pesetas - which was the last area of Banesto's loan book to be examined. As the Bank of Spain had approved the refinancing until then, this has not satisfied everyone. 'I was baffled when I heard the Governor say this,' said Miguel Olabarri, head of strategy at the Madrid brokers Iberagentes. 'I think it requires further explanation.'
Mr Conde has so far said nothing. Since he resigned in Mr Rojo's office on the day of the intervention, he has been planning his defence with lawyers and former members of Banesto's board at his luxurious Madrid residence. A spokesman said he would make a statement this week. When he does so, more than his own reputation will be at stake.