MADRID Jan 30 Spain may have to foot part of a
compensation bill likely to stretch to hundreds of millions of
euros from a mis-selling scandal embroiling the country's
rescued banks that has seen elderly savers take to the streets
Thousands of ordinary Spaniards are facing losses on complex
financial products such as preference shares and subordinated
debt, which many claim were sold as safe savings products.
Under conditions set by Brussels, savers will see their
investments partially wiped out and the rest swapped into bank
shares so that lenders like state-owned Bankia can
receive European aid.
That has created a problem for politicians in Spain, where
demonstrations by pensioners, angry at losing their life
savings, are becoming an almost daily occurrence.
Spain is not alone is facing a stinging mis-selling scandal.
In Britain, banks have set aside 12 billion pounds ($19 billion)
to compensate customers wrongly sold loan insurance policies - a
bill which could reach 25 billion pounds.
UK banks have also been caught up in a scandal over complex
swaps. The UK lenders had to face the costs
alone, although banks such as Royal Bank of Scotland and Lloyds
are part-owned by the government.
Spain may end up having to use public funds to help lenders
like Bankia face up to compensation payments, two sources
familiar with the process said.
Spain's government is trying to put nationalised lenders on
a stable footing again after requesting 40 billion euros ($54
billion) in European rescue funds last year to help banks cope
with losses from a 2008 property crash.
"The first impact will be taken by the bank and once the
compensation has been paid, each bank's situation will be looked
at and a decision will be made on whether it needs public
support or not," said an Economy Ministry source.
Rescued banks are not allowed to use funds from Europe to
compensate victims of mis-selling.
Hybrid instruments, like the preference shares, are halfway
between a bond and a share. People who win arbitration cases
against banks can get their original investments back, and would
no longer have to keep the shares they were forced to swap into
-- thus depleting banks' capital, the sources said.
A group of 30 elderly Bankia customers stormed into a bank
branch in central Madrid on Tuesday, shouting "thieves, thieves"
at staff of the bank which had to take 18 billion euros in
European rescue funds and is a particular focus of public ire.
An arbitration process for claims against Bankia has yet to
start, making it hard to pin down an estimate of what the bill
could be. The bank has roughly 5 billion euros in preference
shares and subordinated debt sold to customers, and only a
portion of those will likely escape the enforced writedowns.
At nationalised Galicia-baesd peer NCG Banco, where the
arbitration process has been running for 6 months, around 11
percent of its 1.8 billion euros in hybrid instruments has so
far been repaid, to just over 11,600 claimants.
At fellow bailed-out lender Catalunya Banc, meanwhile, the
compensation bill from preference share claims is unlikely to be
much more than 100 million euros, out of the roughly 500 million
euros worth of those securities, a banking source said.
About 5.5 billion euros worth of preference shares are held
in total by Spanish bank customers, markets regulator CNMV said.
It said it did not have data for subordinated debt holdings.
While Spain's nationalised lenders may be able to cope with
compensation costs in the millions of euros, Bankia's bill will
be the biggest as it sold more of the products than other
lenders, and successful claims are only likely to rise as the
government tries to quell public anger over how arbitrations are
handled by easing the process.
Consumer groups have argued the criteria used by banks to
chose cases for arbitration so far are too narrow. These include
selecting cases where products were sold to minors or disabled
people, or when key documentation was not given to clients.
That has put off some customers from trying arbitration, a
route which bars clients from using other legal avenues.
"It's another swindle," said Raquel Millan, whose parents'
bought 35,000 euros worth of preference shares in 2010 from
savings bank Caja Madrid, which later became part of Bankia.
($1 = 0.7370 euros)
(Reporting by Sarah White; Editing by Elaine Hardcastle)