Bankia to agree to arbitration in case of mis-selling of hybrid financial products

Economy Minister Luis de Guindos said Tuesday that nationalized lender Bankia would agree to arbitration in the case of unsophisticated retail investors who lost money on complex financial products that they were sold without an understanding of how they worked.

A similar system of arbitration is in place at other nationalized lenders NovaCaixaGalicia and Catalunya Banc, which have been ordered to give some of their clients their money back.

“The government is conscious of the problem of possible mis-selling of complex financial instruments to retail customers,” De Guindos said in Congress. “It is our intention to make use of an arbitration process for holders of Bankia hybrid products that will follow similar procedures as in the cases of NovaCaixaGalicia and Catalunya Banc. This will apply to the most flagrant cases where bad practices have been demonstrated in the marketing of these products and those particular circumstances where the client was not in a position to understand the product.”

Under the terms of the bailout for Spain’s banks, retail investors stand to make substantial losses on instruments such as preferred shares they acquired from banks that were subsequently nationalized.

The arbitration will be carried out in conjunction with regional consumer groups.