Spanish savers: government to the rescue?

Last week I wrote about the Spanish savers who are set to lose everything because they were sold preference shares in their banks which have subsequently gone bust - New fears over Spanish bank accounts.

I said that it was worrying that the government was not prepared to step in and help despite the fact that the policies were blatantly missold to the vast majority of retail investors who thought they were just deposits with lock in periods.

It seems like I may have jumped the gun and surprisingly underestimated the Spanish government on this one.  According to an article in the FT they are going to ensure that most small savers are repaid in some form.

The concession is complicated by the Memorandum of Understanding the Spanish government signed with the EU prior to receiving access to up to €100bn of bail out money for their financial institutions.  This envisages bank preference shareholders taking their losses in full and there are restrictions on what can be repaid e.g. no more than 10% more than the current market value of the shares.

Some of these shares trade at below 50% of face value so saver could still be taking a big hit.  However the outlook has definitely brightened for them and it slightly increases general confidence that the government will protect the retail depositor more generally whatever happens.  If it can afford to.

From the website:  Spanish tax form 210

New fears over Spanish bank accounts

A little while I wrote about the security of Spanish bank accounts in the midst of the rapidly worsening economic situation in Spain: Are Spanish Bank Accounts Safe?

The gist of the article was that although there are government guarantees for deposits up to €100,000 I wouldn't be too confident because, in a worse case scenario, the government might fail to honour the guarantee or even pay up in devalued pesetas.

The latest twist in the tail concerns savers who have lost their savings without any recourse to the government deposit insurance, because they have been sold preference shares in their bank.

These were sold as if they were just deposits with especially good rates of interest but they have turned out in fact to be risky securities which would not pay out at all if the bank went under.  That's exactly what has happened in some cases, especially the giant Bankia which had to be bailed out last month leaving "preferential shareholders", mostly innocent savers, wiped out.

I have read that there hundreds of thousands of these preference shares in private hands.  But if your money is in a proper bank account then you should still be able to claim on the government deposit insurance if your bank goes to the wall.

There has been no suggestion that the government will step into help preferential shareholders which does rather support my view that Spanish government bank deposit guarantees might not be honoured if things get really bad.  No wonder it is said that tens of billions have already been shipped out of the country.


From our website:  Changes to Spanish tax form 210

Spain's Fred Goodwin has sunk the country's credibility

If there was any doubt that Spain is headed the way of Portugal and Ireland (if not quite Greece just yet), the Bankia affair has just removed it.

The country is in dire straits and the public face of the disaster is Rodrigo Rato (roughly translated as Roland Rat) who was forced to resign as boss of Bankia when it was forced to seek a €19bn government bailout.

With strong echos of Fred Goodwin he walks away with a cool €12 million or so in compensation and accrued pension benefits.  He was only at the bank a year and, while he can't be blamed for the property losses which sank the mega-bank (they were accumulated long ago by the various dodgy institutions that were roped together to form Bankia), he is certainly culpable.

This bank had already been recapitalised once when it took the opportunity to raise €3bn from the markets (i.e. pension funds and private investors who have now been almost wiped out).  The bank continually lied to the outside world about the true extent of its losses even declaring a profit of €300m just months before an external investigation revealed the true scale of the disaster.

A parliamentary inquiry and a judicial investigation into criminal charges have been called but the rat will scurry away from the sinking ship unharmed no doubt.

The Spanish public are angry and somewhat scared I think.  They have every right to be on several counts:

- Spain obviously doesn't have the money for the bailout and its European "friends" are not about to stump up

- The scale of the losses at this one bank tells the markets that the dire predictions about the Spanish banking sector as a whole (€200 billions of undisclosed write-offs) might not be far off the mark

- Spain has lots of similar hidden liabilities like the unpaid bills of its regional governments (€37 billion they say but no one knows) and a €24 billion slush fund I wrote about recently (are Spanish electricity bills about to soar?)

- But the worst thing is that the government's credibility is also sunk along with Rato's.  The previous administration encouraged the initial merger and the current one signed off on a much smaller recapitalization only days before the final shocking denouement.

The markets have given up on Spain and the spread over German bonds (the extra interest that Spain has to pay for its borrowings) is now at a record 5,4%.  It would be much higher if the markets were not wary of the ECB suddenly changing course and directly intervening in bonds markets; that is the only thing making Spain other than a one way bet.

This risk premium - la prima de riesgo - is now watched by the public like football scores or lottery draws.  They know that the game is almost up - financial chaos and humiliation is inevitable unless the ECB or Germany come up with some kind of deal.  And fast.

From our website   A guide to Spanish pension benefits