Bankia compensation qualms signal loss of faith in Spain's banks

Sun May 19, 2013 6:10am EDT
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By Sonya Dowsett

MADRID (Reuters) - Many duped savers at Spanish lender Bankia (BKIA.MC: Quote) are shunning a state-supervised compensation scheme in favor 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 nationalized 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 deposit accounts.

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 recapitalization was calculated.   Continued...

A vandalized Bankia's bank office with papers stuck on it, is seen in Barcelona May 16, 2013. The papers read as "Spanish 'corrallito' of LaCaixa and 52 other banks. More than a million people cheated, 8.25% of the Spanish population". REUTERS/Albert Gea