Episode Details

In the first half of 2011, every piece of information needed to avoid Bankia was publicly available. The provisioning gap was estimable from disclosed NPL data. The governance structure was in the prospectus. The stress test methodology had been publicly criticized by the EBA before the IPO window opened. This episode dissects the three-layer due diligence framework a GP or LP should have applied before the shares changed hands: asset quality versus reported marks, provisioning adequacy versus NPL trajectory, and governance architecture as a leading indicator of credit quality. We also dissect the incentive architecture that made sure almost nobody ran it — and why the same structure is present in any financial institution IPO in a deteriorating credit environment where the asset valuations are internally generated.