Econintersect: There are reports this morning that Eurozone authorities are pushing for Spain to wipe out retail investor savings before the Spanish banks receive the recapitalization rescue funds. Spain has a unique situation that small savers were frequently given debt instruments and preferred stock in lieu of deposit accounts. An article in the Financial Times indicates that much of the €67 billion of subordinated and hybrid debt outstanding for Spanish banks is in the form of these savers’ “certificates” ) Econintersect word, not from another source).
The reports being published tonight and in recent days do not talk about the potential write down of any of the large financial system obligations. Apparently financial royalty will not suffer any losses as long as the peasants have something left to lose. Click on caption photo to see Spanish bank customers watching the arrival of “help” from Brussels.
This is a continuation and expansion of the problem that arose with the nationalization of Bankia in May. There are now criminal investigations about the conduct of Bankia before its takeover as a result of more than 300,000 small investors, most of them clients of the bank, investing in Bankia in its 2011 IPO, allowing the bank to raise €3.1 billion. The charges allege that the conversion of depositors’ deposits to equity was accomplished by fraud, misappropriation of funds and falsifying its 2011 annual results, according to The Wall Street Journal.
The situation of savings conversion to subordinated debt and hybrid equity appears to be a situation unique to Spain. From the Financial Times:
“The difference between Spain and other European countries is that these instruments are held mainly by retail investors,” said Daragh Quinn, a banking analyst at Nomura. “People who bought them might not have known exactly what they were investing in”.
Luis de Guindos, Spain’s finance minister, has admitted that investors should not have been sold the savings products and he had sought to minimise their potential losses under a eurozone rescue. “It was an error to sell the preference shares, and we will have to look for solutions,” he said in May.
According to the Financial Times these subordinated securities were sold to retail investors as savings products.
Two Spanish retail investors are pictured below receiving help from Eurozone bank examiners.
- Spain pressed to inflict losses on savers (Miles Johnson, Peter Spiegel and Joshua Chaffin, Financial Times, 10 July 2012)
- Spain’s National Court Probes Bankia IPO, Names Rato Suspect Christopher Bjork and David Roman, The Wall Street Journal, 04 July 2012)