Court orders Bankia to return subordinated debt holder's money

A Barcelona court has declared null and void a contract signed by a client of Bankia under which the bank purchased subordinated debt it had previously sold to the customer in exchange for shares in the lender, which subsequently fell sharply, because it ruled that the woman in question had not been sufficiently informed of the risks involved in the operation.

The court also ordered Bankia to return the woman’s investment of 33,000 euros with interest and take back the shares in the bank the client felt obliged to accept as the only means of recovering her investment.

In a statement, the judge noted that over 90 percent of the some 6,000 people who acquired subordinated debt and preferred shares in Caixa Laietana, one of seven savings banks that merged to form Bankia, were obliged to trade these for shares in the bank. Shortly afterward the value of the shares plunged in the stock market.

Bankia was nationalized in May 2012, less than a year after listing in the Spanish exchange at 3.75 euros per share. The shares have lost well over 90 percent of their value.

The woman, who is retired, began to buy subordinated debt from Caixa Laietana in 2008 and made subsequent purchases at the instigation of the director of the branch where she had her account. The director told her the debt accrued a higher interest rate than a term deposit and that she could withdraw her money any time she wished, but did not inform her of the risk involved. The judge ruled the woman did not receive “precise, truthful, impartial and clear” information.

The ombudsman in Catalonia, Rafael Ribó, has asked the prosecutor’s office to investigate whether possible fraud had been committed in the exchange of Bankia’s debt for shares in the bank. “There were more than sufficient elements to indicate what would happen to the shares in what was a genuine leap in the dark with a huge risk of failure,” Ribó said in his communication to the prosecutor.