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'Preferential shares' scandal ruins Spanish savers

09 august 2012, 14:55
0
Photo courtesy of knickledger.com
Photo courtesy of knickledger.com
The bank called them "preferential stakes", but Inocencio Merino would prefer to have avoided them, AFP reports. For him and thousands of other Spanish pensioners, the jargon hid a toxic financial tool that poisoned his savings.

"It's the scandal of the century in Spain," said Merino, a retired metal worker of 68, recounting how his bank persuaded him to convert his 12,000 euros ($14,800) of savings into the complex bank bonds.

After Bankia, formed in 2010 from the fusion of seven regional savings banks, turned to the government to rescue it from collapse in May, customers such as Merino found their savings blocked.

Some 710,000 families are affected by the "preferential" stakes, which were misleadingly presented as secure deposits, said the financial consumer association ADICAE, which has received 30,000 complaints about the issue.

Most of the complaints are against Bankia, and two other banks, CAM and Novagalicia, it said.

"In total, 30 billion euros' worth of these toxic products were issued since 1999, of which 26,000 are preferential," said an ADICAE representative, Javier Contreras.

By converting savings into stakes, the banks made their capital balance look stronger, but customers had their savings locked up and received none of the usual stakeholder voting rights, ADICAE said.

Merino said he converted his savings into "preferential stakes" in CajaMadrid, one of the funds that merged into Bankia, trusting it as the bank he had used all his life.

"My bank told me it was a safe investment with a very good return of seven percent and that I could get my money back in 2014," he said.

"I didn't even know I had preferential stakes. They called them financial assets," he added.

"My parents are not from an educated background," said his daughter Magdalena, 43, who is unemployed.

"My mother wanted a low-risk investment. They told them, 'you will get your money back in 2014'. But it was a verbal agreement."

Once Bankia's problems came to light, the bank "never once called to say something was up", Magdalena added.

But the family soon found that the bank would not let it access the money it had saved.

ADICAE, which is bringing a lawsuit against the banks on behalf of Merino and many other customers, considers "the way the products were sold was irregular due to lack of information and abuse of trust", Contreras said.

"This lack of information or disguising it as if it were another, safer product was done most flagrantly with the large number of savers of advanced age, from 80 to 90 years old," ADICAE explained in a statement.

An association representing minority shareholders, AEMEC, said the selling of the stakes to people "not qualified" to assess the risks breached regulations on financial products.

It alleged also that there was "a lack of supervision" by Spain's central bank.

Spain's Economy Minister Luis de Guindos has announced plans to pass new regulations for complex financial products including so-called "preferentials".

Some savers have managed to win back all their savings in the courts, but for Merino, the outcome is uncertain.

"My wife thinks we have lost everything," he said.

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