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VIGO, SPAIN — In the manner of an earlier, more courtly style of Spanish banking, he liked to be called Don Julio by his employees and the businessmen and government officials here in the city where he was born.

And during the more than four decades that Julio Fernández Gayoso ran what eventually became the biggest savings bank, or caja, in northwestern Spain, the institution helped transform the city of Vigo, an industrial port city nearly 500 kilometers, or 310 miles, from Madrid.

It was thus a steep fall from power in late June when Mr. Gayoso, age 80, was forced out after being named as a defendant in a lawsuit filed by anti-fraud investigators.

Whatever the result of that lawsuit, Mr. Gayoso has emerged as a symbol of the clash between the time-honored tradition of the caja as a baronial community institution and the modern, euro-based banking economy that Spain has tried to create in recent decades.

This collision of business cultures played out in various ways among the 45 cajas that operated in Spain until early 2010, more than a year after the real estate bubble burst. Together, these clashes helped bring the country’s banking industry to the brink of collapse, prompting European finance ministers in June to devise an emergency €100 billion, or $123.4 billion, rescue plan for the sector.

In the years before the real estate collapse, Mr. Gayoso and his caja, Caixanova, financed Vigo’s first university campus. They built or acquired some of the grandest buildings along the city’s main thoroughfare. And through Caixanova, Mr. Gayoso became a leading patron of the arts, assembling an impressive painting collection hung at various cultural centers sponsored by the bank.

“This is a workers’ city, but even our Communist painters got so many commissions from him that they portrayed him as a god,” said Carlos González Príncipe, a former mayor of Vigo.

Mr. Gayoso resigned just days after investigators filed suit against him and four other board members, accusing the executives of surreptitiously setting up multimillion-euro retirement plans for themselves after the 2010 merger between Mr. Gayoso’s caja and another savings bank in the Galicia region.

The merged institution, Novacaixagalicia, was Spain’s fifth-largest savings bank, with about 8,000 employees, almost three million clients and annual revenue of €124 billion.

Last year, the state took control of Novacaixagalicia and pumped in €2.5 billion of capital to offset the bank’s burgeoning portfolio of problem loans.

Mr. Gayoso declined to be interviewed for this article. But in recent testimony before the Spanish Parliament, he denied responsibility for the bank’s collapse. He described his chairmanship as an institutional position that was limited to making proposals to the board.

“I didn’t take a single personal decision, because I couldn’t,” he told lawmakers.

Mr. Gayoso’s portrayal of his chairmanship is contradicted by some former board members. Whatever Mr. Gayoso asked of the bank’s directors, “there was no debating and never any voting,” said José Luis Veiga, who joined the board three years ago and remains on the board of a cultural foundation linked to the bank.

“The bank’s leadership and strategy were completely in his hands,” Mr. Veiga said.

Most of Spain’s cajas were established in the 19th century as pawn shops, with the backing of town halls and the Roman Catholic Church. Their purpose was not to generate profit for shareholders, the way commercial banks do, but to redistribute surplus income through social work. In many cases, though, the cajas increasingly came under the control of regional politicians who were eager to use the bank to finance government projects.

But as the cajas amassed power in Galicia, the tendency “turned out to be excessive control not by politicians but by a few bankers who got so powerful that even politicians became afraid of them,” said Santiago Lago-Peñas, an economics professor at the University of Vigo. Board membership, he added, became a matter of “how close the relationship was with the chairman, rather than experience.”

Mr. Princípe, the former mayor of Vigo, takes the long view.

“Almost everything here had to change, as we transitioned from the Franco dictatorship to democracy — except for the person who controlled our banking system,” said Mr. Princípe, who contends that Mr. Gayoso helped end his political career in the 1990s by financing a rival’s election campaign.

“When you’ve been the main financier for so long,” he added, “it’s possible to spread fear.”

 

Origins of a crisis

Mr. Gayoso joined the caja in Vigo in 1947 as a 16-year-old accounting assistant. By 1965 he had risen to the top post, director general, and over the next 30 years consolidated his power and expanded the bank’s reach. Critics say that the longer Mr. Gayoso ran the bank, the less accountable he and the board were.

In the 1980s, Miguel Ángel Quinteiro, an employee in the bank’s information technology department, joined the board as a staff representative. Mr. Quinteiro said he had heard rumors that the caja was writing off bad loans that had been granted on preferential terms to some local businesses, but when he asked for a list of defaults he was refused. He said he also asked for details of the bonuses paid to employees in cash each year, but was again refused.

Eventually, Mr. Quinteiro said, he was fired after being accused of leaking confidential information from board meetings to a trade union. He threatened to sue for unfair dismissal — until, he said, the bank offered him the equivalent of €180,000, “one of the highest settlements at that time and enough to do what I wanted,” which was to set up his own information technology company.

A wake-up call for the cajas came in the late 1990s, when Spain was poised to enter the euro zone and a construction-driven boom was already under way. The cajas, intent on maintaining their 50 percent share of Spain’s banking market, began competing more aggressively with commercial banks to offer real estate loans. They were encouraged by regional politicians eager to sell previously unwanted public land.

As the real estate bubble continued through 2008, the cajas began venturing beyond their regions, where they were ill equipped to assess and monitor the creditworthiness of borrowers. Galicia’s cajas ventured especially far afield — not only into Valencia, on the other side of the country, but even down into the Canary Islands, off the coast of Morocco.

By the end of last year, Galicia’s cajas had accumulated €5.5 billion of loans presenting a risk of default, requiring the state to inject €2.5 billion of bailout funds.

Some officials and business owners in Vigo suggest that Mr. Gayoso was less aggressive, and ostentatious, than his counterpart at another caja in the Galician region that also overextended itself during the real estate boom: José Luis Méndez.

Mr. Méndez ran Caixa Galicia for 29 years, before the government ordered it to merge with Mr. Gayoso’s bank as part of an industrywide consolidation intended to salvage the caja system.

Among Caixa Galicia’s investments was a yacht and crew at the disposal of Mr. Méndez. And although the bank was based in the northern Galician city of A Coruña, Mr. Méndez persuaded his board to build a cultural center in Vigo. The cultural center stands unfinished, however, a silent reminder of the collapse of Spain’s construction sector.

As the extent of the national mortgage meltdown became evident, the government engineered a major consolidation of the cajas, reducing their number to 12 today from 45 in early 2010.

When it came time to combine Caixa Galicia and Caixanova, Mr. Gayoso’s board — which had already raised the statutory age limit of a director general to 75 from 65 so Mr. Gayoso could remain in charge — demanded that he be guaranteed the chairmanship of the merged institution.

Mr. Méndez did not fight for the post. Instead, he agreed to leave before the merger was completed, after securing a €16.5 million severance and pension package, a record for a caja chief. Mr. Méndez was not available for comment and has not given any interviews since his departure, Novacaixagalicia said.

 

Picking up the pieces

Marcelino Otero López, president of an association of Galician companies that is based in Vigo, argued that Mr. Gayoso was right to defend the city’s financial interests and resist a Madrid-driven merger with its main competitor. Vigo’s caja, he argued, had been “the paradigm of a well-managed bank” — until it became infected by Spain’s real estate frenzy.

Luis Miguel Franqueira García, a spokesman said the bank — now named Novagalicia Banco — was making “a fresh start” under the chairmanship of José María Castellano, a former senior executive at Inditex, the fashion retailing giant based in Galicia whose brands include Zara.

The caja remains 93 percent owned by the state banking agency, which approved Mr. Castellano’s appointment. He recently indicated that Novagalicia Banco would require an additional €6 billion of capital, on top of the €2.5 billion of bailout money received last year.

In early July, the bank publicly asked for forgiveness from customers — notably depositors who, before the bank’s collapse, had been sold preference shares, a convertible debt instrument that plunged in value, leading to protests and lawsuits. Many analysts say these instruments were too complex and risky to have been marketed to consumer bank depositors.

Now on the windows of the bank’s offices, a 10-point “Pledge to Galicia” has been posted. Promise No.3: to be “austere and transparent.”

Still, some longstanding customers say the bank will need more than that to restore confidence, especially given the broader challenges still confronting the banking sector.

“Whatever Gayoso might have done wrong, what needs repairing is our whole banking system,” said José Fernandez, a grocery shop owner in Vigo who opened his account four decades ago. “There might not have been sufficient controls within the caja. But this would not have been such a problem if the Bank of Spain had done its job and really supervised the financial sector.”

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