El Economista is one of the few magazines that had faith in Gowex when its shares plummeted for the second straight day on the MAB, Spain's Alternative Stock Market, without any explanations expect from a joke from the company CEO Jenaro García to put wifi in Gotham. Shame, swindle and fraud.
The problem this time is that Gowex is a major stock on the MAB, which was created to help high-risk companies get started. It was an experiment of the Madrid market, but now could fail because it lacks strong control and oversight of its companies.
A lot of people are trying to divert attention to Ernst & Young (E&Y), the company that assessed Gowex, but the Achilles heel is the company that audited Gowex. How could an auditor value a company worth 1.8 billion euro in stocks and operating in twelve countries only have one person on the payroll that never leaves Madrid? The capital requirements should have met the company's real size and dimension.
Gowex had grown so much that its stock market value was coming more from the Ibex than the MAB. Still, it had the supervision of a startup. Within the MAB they had already realized the problem and were preparing a rule to limit the size of their listed companies, which was fixed at 500 million by Economic Minister Luis de Guindos.
This figure is controversial, because the point is to make sure companies present their paperwork on time and in line with the rules. In this case Ernst & Young, one of the four big auditors, made the situation worse. The work was trusted to the legal division within E&Y, which struggled to make an audit decision. The question now is whether it makes sense to use an auditor that has such limited power and decision-making ability.
The Gowex fiasco is not the only one that the MAB has dealt with. The company Negocio launched its IPO after Credit Suisse confirmed two million euros in earnings this year. Later, we learned that the money came from fraudulent EREs, for which the people in charge of that deal should go to jail. Why a sanction was never brought against the creditor bank that robbed hundreds of small stockholders? Something has smelled rotten in the MAB for a long time, although its directors have been looking the other way. Now, the risk is that if one rotten apple isn't pulled in time, the whole bunch will spoil. This would be a pity, because we need a market for small shareholders to play in as an alternative to traditional financing techniques and fixed income debt issues. For that to happen, we need a new model.
Contagions wreak havoc on markets, and firewalls to prevent them are a necessary part of business. We have seen how in just a few weeks problems with Portugal's Banco Espíritu Santo (BES) caused the company to lose around 60% of its stock and infect the rest of the European banking sector.
The Portuguese central bank and the nation's Prime Minister, Pedro Passos Coelho, defended the biggest bank in the country in order to stop the bleeding. Previously, the central bank had asked BES to recapitalize its debt and upgrade its management team. The exact opposite happened with the MAB, which took several days to suspend trading of Gowex stock and ask its CEO for explanations, despite the fact that the stock price was freefalling.
BES has solid capital reserves even if you discount its subsidiary's iffy debt. But the crisis is far from being fixed and could unleash new tremors in peripheral Europe. Moody's took a stab at BES by dropping its credit rating by three levels at the end of the day on Friday, putting it at junk bond status.
From nervousness to desperation. The CEO of RTVE, Leopoldo González-Echenique, is accusing elEconomista of provoking a strike for July 24 due to the low rates that the company is offering. We wrongly cited RTVE as the source of information about a plan to cut 500 people from their company, which they assure is not a done deal. The number is based on the number of people that could retire based on their age and coincides with forecasts made by a labor union. As a result, it is ridiculous to think that our information caused the protest.
González-Echenique is on thin ice, because he waited too long to make needed cutbacks, which led to the company piling up more than 100 million in losses. Pressure from the Finance Ministry to keep pumping money into RTVE is forcing the public TV station to unveil a plan that inspired this strike and a complicated schedule of protests as we head into election season. This was a heinous management error that he'll probably lose his job over.
