Bankia has 300,000 clients locked into hybrid products

The Orderly Bank Restructuring Fund (FROB) on Friday calculated that half of the around 300,000 customers who were sold preferred shares and subordinated bonds by nationalized bank Bankia invested less than 10,000 euros in these complex hybrid instruments, whose value has plunged.

These investors are likely to be given priority in the arbitration process that opened on Thursday to decide whether these products were mis-sold. Others likely to be given priority are elderly investors and those on low incomes.

All Bankia clients will be entitled to arbitration free of charge regardless of the size of their investment. A number of courts have ordered Bankia and other nationalized banks to return the amounts invested by unsophisticated bank customers in such instruments.

Bankia has the biggest number of clients affected, having sold three billion euros in preferred shares and 1.9 billion in subordinated bonds to some 200,000 of its customers. Another 100,000 clients took part in the swap of preferred shares and subordinated bonds at the start of 2012.

At Novagalicia, which has also been nationalized, 60,000 clients were sold hybrid instruments.

Those who seek arbitration will receive a report from an appointed expert, which in the case of Bankia is consultant KPMG, in which they will be advised whether or not it is worthwhile taking their case to the government department that deals with consumer affairs, and the exact sums of money they might receive.

The government will have the last word on whether compensation is due. FROB sources said it is very unlikely that the government will take a view that is opposed to that of the expert.

If the customer in question is unhappy with the ruling made in the arbitration process, they can still take their case to court. The government hopes to complete the arbitration process within six months.