* Spanish govt created compensation scheme to defuse scandal
* Bankia expects around 150,000 people to seek arbitration
* Lawyers say many people inquiring about taking cases to
By Sonya Dowsett
MADRID, May 19 Many duped savers at Spanish
lender Bankia are shunning a state-supervised
compensation scheme in favour of expensive lawsuits, prolonging
a mis-selling scandal and complicating efforts to restore faith
in the banking system.
The disputes over mis-selling at Bankia and other
nationalised banks have created a major headache for the
government as it tries to take the next step in their rescue,
imposing large losses on holders of junior debt.
It set up the arbitration process to try to end daily
protests by some of those debt holders - elderly savers who say
they were mis-sold complex debt products as safe, high-interest
But many people caught up in Bankia's rescue see it as a
trick to stop them getting their money back.
"We are not going to enter the arbitration process because
we think it's a swindle," said 66-year-old Carlos Peral at a
recent protest outside a Bankia branch in a Madrid. All the
demonstrators Reuters spoke to were seeking legal action.
Peral and his wife, both blind, have 80,000 euros
($103,300)of life savings tied up in Bankia preference shares, a
form of hybrid debt due to be converted under the rescue by May
24 into ordinary shares worth around 38 percent less
The terms of its EU-funded 24.5 billion euro bailout require
Bankia and its parent group BFA to raise 6.5 billion euros this
way -- by converting debt into equity at a large discount.
Whether customers win misselling claims through the courts
or through the state-sponsored scheme, the bank will have to
find the money to compensate them, a factor not taken into
account when its recapitalisation was calculated.
"The arbitration process is not something positive for
Bankia. The bank will have to settle those claims in cash," said
a banker involved in Bankia's recapitalisation.
Court cases drag out the issue for even longer. "You don't
know when the legal cases will end, they could last years."
Bankia declined to say how many court cases had been lodged
against it related to preference shares, but said it was much
fewer than the number who had requested arbitration.
A bank spokesman said the compensation claims would be
easily covered by parent group BFA and would not affect Bankia's
capital. Preference share holders will have the market value of
their shares deducted from any compensation package.
The mis-selling scandal is salt in the wound for Spaniards
forced to put up with years of tax hikes and spending cuts to
deal with the country's financial crisis.
A 2013 survey carried out by public relations agency Edelman
found Spaniards the most unhappy worldwide with their banks,
outstripping Ireland, Great Britain and Italy, all of which have
suffered banking scandals in recent years.
Peral, one of 300,000 hybrid debt holders whose new shares
are due to start trading on May 28, is deeply mistrustful: "The
measures have been drawn up to trick people into making a claim
which will then be rejected and they'll keep the money."
Bankia customers have until June 30 to file claims of
mis-selling. Auditor KPMG determines the maximum amount that
could be awarded to the claimant, who then signs an agreement
which waives future legal action. A state arbitrator then
determines the actual level of payout.
The legal route is more expensive as it includes lawyers'
fees, but many preference share holders believe they have a
better chance of getting more money back through the courts.
No arbitration case has yet paid out, but Bankia says
successful claims should receive their money back, adjusted for
interest. Lawyers were cashing in on the confusion surrounding
the arbitration process, said a source close to the process.
"For the lawyers, the fact that there is a quick and free
compensation process is very bad news," he said. "There is huge
business for them in taking these cases to court."
The bank said that 44,316 people had so far applied for the
arbitration process and it expected around 150,000 customers to
turn to it in total.
The banker involved in the recapitalisation said many may
turn to arbitration after May 28 when the new shares start
trading if their price dips because savers cash them in.
MONEY BACK PLEASE
To determine eligibility for compensation, factors such as
whether bank staff explained the risks of the product and the
customer's investment history are taken into account.
On the street, confusion over the criteria reigned.
"To win the arbitration you have to have Alzheimer's, or be
illiterate or on an extremely low income," said Raul Gomez, 60,
who has 145,000 euros locked in preference shares, including a
redundancy package from his former job as a supermarket manager.
"Going to court is the only way for me to get something
back," he adds. He says that out of 52 court cases he knows of,
51 have been successful.
Legal firm V Abogados recently put on back-to-back
presentations about the arbitration process at a Madrid hotel to
packed audiences, where people clamoured for advice.
"We've had around 2,000 people coming to our offices
connected with this issue," says V Abogados lawyer Santiago
Viciano. "Our switchboard has been blocked with people ringing
in from all over Spain."
Most preference share holders have won their claims so far,
he said, adding that he expected an avalanche of rulings through
the courts after the summer.
The protesters just want their money. "We're not interested
in the swap or the compensation," said Mariano Hernanez, a
retired carpenter with 464,000 euros in preference shares.
"I'm 81 now, and I will keep fighting until I get all my