MADRID, Dec 18 (Reuters) - Spain said it plans to compensate in full the losses suffered by some people who invested in the complex financial instruments in Spain’s nationalised banks.
Economy Minister Luis de Guindos said junior bondholders who were not in a position to understand the complex financial products they were sold would now be able to seek arbitration from consumer bodies and obtain compensation.
Hundreds of thousands of Spaniards, some retired people with no in-depth financial knowledge, invested their savings into high-risk instruments, such as preference shares or subordinated debt.
The banks, using aggressive commercial practices, sold the products on the retail market to boost their capital at the start of the financial crisis after institutional investors stopped buying them.
Junior bondholders in state-rescued banks Bankia, Novagalicia Banco, Catalunya Banc and Banco de Valencia were forced to take losses on their investments as a condition for the lenders receiving 37 billion euros ($48.70 billion) of European money to clean up their balance sheets.
Brussels imposed losses ranging from 14 percent to 46 percent on holders of hybrid instruments in Bankia, for a total cost estimated by the European Commission at 10 billion euros.
Some of these investors have individually managed to get compensation for their losses, but a wider compensation process for Bankia had so far been ruled out because it may have hurt Spain’s public finances.
De Guindos said arbitration would apply only to cases in which banks acted in bad faith in selling the products.
“We are making an effort so that those people who were affected by improper selling and can prove it will be compensated 100 percent of the nominal value of their investment,” de Guindos said at a parliamentary hearing.
Retail investors currently hold 3.1 billion euros in preference shares and 1.9 billion euros in subordinated debt in Bankia, while just 0.1 billion euros and 1.3 billion euros, respectively, is held by institutional investors.
Preference shares are a half-way house between a share and a bond. They do not mature, are not protected by the state’s deposit guarantee fund and stop paying out a coupon if the company falls into losses.
In the event of a bankruptcy, preference share holders are at the back of the queue, behind bondholders. ($1 = 0.7598 euros) (Reporting by Carlos Ruano and Jesus Aguado; Editing by Julien Toyer and Louise Heavens)