‘Give us back the cash you stole’: pensioners

Every Thursday dozens of pensioners gather outside bailed-out lender Bankia in the Spanish capital with a simple demand: Give us our money back.

'Give us back the cash you stole': pensioners
Many Spanish pensioners lost money after investing in what banks told them were 'safe' preference shares. Photo: Josep Lago/AFP

The pensioners, and many thousands like them across Spain, say they unwittingly became holders of complex and risky "preference shares", which their banks had assured were as safe as a savings deposit.

Those preference share investments quickly became a costly trap.

Spanish banks' balance sheets were strewn with red ink after a 2008 property crash, forcing Spain to prop them up with €42 billion ($54 billion) in rescue loans offered last year by its eurozone partners.

As one of the conditions of extending the rescue funds, Brussels demanded that holders of preference stock share in their banks' losses.

"This is shameful! The government knows that Bankia has swindled pensioners," said 70-year-old Antonio Rodriguez as he protested in Madrid's central Puerta del Sol square outside a branch of the former savings bank Caja Madrid, which merged with six other regional savings banks to form Bankia in 2010.

Rodriguez said he poured €72,000 into preference shares in Caja Madrid in 2009 after being told by his bank manager that it was a "safe" product that would deliver a 7 percent annual rate of return.

"If he had told us that we risked losing everything, we would never have signed," he said.

After Spain's decade-long property bubble burst in 2008 sending the economy into a tailspin, savings banks sank into a sea of toxic property loans and they stepped up their marketing of preference shares as they tried to boost their solvency ratios to meet stricter regulatory demands.

Nearly one million Spanish depositors, many of them pensioners, poured money — in some cases their entire life savings — into preferred shares issued by their banks, according to banking consumer association ADICAE.

"No other European country sold preferential shares to small savers. The pressure of the banking lobby in Spain is enormous," said ADICAE spokesman Fernando Herrero.

But as Spain's economic downturn deepened the value of the preferred shares plunged and it made it effectively impossible to resell them.

Small investors bought €30 billion in preferred bank shares, which are not protected by the government's deposit guarantee fund, according to ADICAE.

Bankia, the largest of four lenders which the government was forced to nationalize, alone has €3.9 billion of preference shares distributed among tens of thousands of its clients while Banca Civica, which was bought by larger rival La Caixa last year, has €9.0 billion.

"Bankers needed to take money where they could find it, which is in the hands of old people who are the biggest savers," said 75-year-old Antonio Baraona Ortiz, one of the protesters outside of Caja Madrid in Puerta del Sol.

"I worked at night. We raised four children. We made a lot of sacrifices to save €68,000 and they have stolen it all," he added.

The European Union, which last year agreed to lend Spain up to €100 billion to help the country shore up its banks, has insisted that bank customers who bought preferred shares would have to absorb losses.

Spain has so far received €41.4 billion from its eurozone partners to fix its troubled financial industry.

Numerous legal cases have been brought by bank clients who allege they were sold risky products as secure deposits and some have succeeded in winning their money back.

This month, the Spanish ombudsman's office recommended that all banks that received state aid such as Bankia undergo "universal arbitration" regarding the sale of preference shares.

The ombudsman's office has received 1,274 complaints over the sale of preferred bank sales since 2011, most from elderly bank clients.

Finance Minister Luis de Guindos has said preference shares should never have been sold to retail savers but he backs arbitration only in cases where it can be shown that "buyers did not understand what they were buying".

Nemecio Martin, a 70-year-old pensioner who invested €42,000 in preference shares, which he had planned to use to pay for his stay in a retirement home, is anxiously waiting for a solution.

"If I can't pay, where will I go? Will I wait under a bridge to die?," he said.

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Spain has a new ‘mega bank’ as La Caixa and Bankia merger approved

Directors from CaixaBank and Bankia Thursday approved their merger into Spain's biggest lender in a move which will transform the landscape of Spanish banking.

Spain has a new 'mega bank' as La Caixa and Bankia merger approved
Photos: AFP

A source close to the deal said the board of directors of both banks approved the merger, details of which will be made public on Friday.    

The negotiations involved Bankia's biggest shareholder, the Spanish government.

The merger creates the country's largest bank with combined assets of around €664 billion ($787 billion) in Spain, Renta 4 Banco analysts say, putting the new entity ahead of Santander or BBVA, both of which have a more international presence.

Under terms of the deal, shareholders in CaixaBank, Spain's largest domestic bank, would hold 75 percent of the new entity, while Bankia shareholders would take the remaining 25 percent.

The Spanish state, which currently holds just under 62 percent of Bankia, will hold a 14-percent share in the new group, press reports said.   

In 2012, the Spanish government stepped in to save Bankia from collapse, spending 22 billion euros ($26 billion at current exchange rates) to bail out a bank that was seen as a symbol of financial excess at a time when the Spanish economy was mired in crisis.

The huge merger comes in a very difficult economic context for Spain which has been particularly badly hit by the coronavirus pandemic, with gross domestic product collapsing by 18.5 percent in the second quarter.

The deal should enable the two banks to reduce costs and offers them “a way of trying to improve profitability,” said Xavier Vives of the IESE Business School.


Job cuts loom

Another advantage of the merger is the geographical footprint of each bank, with Bankia more present in Madrid and in the centre of the country, while CaixaBank is well-established in the northeastern Catalonia region, said Robert Tornabell, a banking specialist at ESADE business school.

The financial structure of the deal will allow CaixaBank to access tax breaks worth “several billion” euros, thus providing the new bank the wherewithal to “finance staff restructuring and branch closures,” he said.

Press reports suggested the takeover would result in nearly 8,000 jobs being axed. The two banks currently employ 51,000 staff spread across 6,000 branches.

Despite the staffing issues and the competition concerns raised by the deal, which will create a bank that will manage nearly a third of all Spain's home loans, the Spanish government has welcomed the tie-up.

“There is a process under way,” Economy Minister Nadia Calvino said last week, pointing out that the European authorities have long been encouraging consolidation in the banking sector.


Recovering taxpayers' money

“With this deal, the government is getting rid of one big headache,” the Cinco Dias business daily said recently.

Since the Bankia bailout, the government has been trying to offload its 61.8 stake in the bank but economic context has never been right. For now, it has only managed to recover 3.3 billion euros of the 22-billion payout.   

Even if its stake in the new entity will be reduced to just 14 percent, that should bring in more money to the state coffers because the new bank will be much more profitable.

However, it will take “several years” for the state get back a sum which will not end up being very much, Tornabell said.   

The tie-up will mean the name Bankia disappears from the high street — a name associated with multiple scandals, particularly that of its floatation in 2011 which attracted thousands of small shareholders who faced ruin several months later when the share price collapsed.

Several months later, the government stepped in and the bank was nationalised.

Bankia's former management team is currently on trial for fraud and falsifying its balance sheet ahead of the failed floatation and if convicted over the scandal, former boss Rodrigo Rato is facing eight-and-a-half years behind bars.

The court is expected to reach a verdict soon.

By AFP's Emmanuelle Michel