Spain's struggling banks finally begged for a eurozone bailout last week, but while the planned rescue may stem the crisis for lenders, it means fresh agony for thousands of British expats.
Spanish and foreign savers are expected to lose huge amounts after they were mis-sold savings products that left them exposed to banking losses. Expats who banked their savings in Spain could see a third of their money disappear.
Savers who thought they were putting their cash on deposit were in fact sold bonds or preference shares in the banks despite the fact that these were normally bought only by professional investors who knew the risks. If a bank were to fail, these products are not covered by the national depositors’ compensation scheme.
Protest: A march in Madrid, Spain, against austerity measures
The terms of the Brussels bailout are expected to mean that those banks needing a hand-out impose losses of about 30 per cent on bondholders. Normally this would mean financial institutions. In Spain, it now also means savers.
It is thought that ordinary savers have been sold bonds and preference shares – which guarantee priority on dividends but have no voting rights – in Spanish banks worth 30billion euros (£26billion) when they thought they were putting money into straightforward accounts.
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The situation is particularly bad for customers of Banco CAM, an Alicante-based savings bank used by many Britons, Germans, Swiss and other northern Europeans who have settled in their hundreds of thousands along the Costa Blanca.
Collapse: Spanish Banco CAM
The bank specialised in property lending and was brought to its knees last year as the Spanish property bubble burst. It was bailed out in 2011 by the government in Madrid and sold for one euro to Spain’s fourth-biggest bank, Sabadell. But it was discovered that 70,000 customers – about 400 of whom were British expats – had been sold a package including CAM’s bonds and preference shares.
A simple cash deposit would earn about 2.5 per cent interest, but that shot up to 3.75 per cent or more if some of the money was put into the complex packages. Savers were told these could be sold within a few days or weeks if they needed cash.
But when the bank crashed, there was nobody to buy the bonds and preference shares. Customers, unaware of the true nature of the packages they had bought, found that they couldn’t get out what they put in, although some were allowed to convert their deposits into current accounts after paying a steep penalty and forgoing interest.
Sabadell has now offered to exchange the bonds for ordinary shares in the bank. But it will match the value of savers’ deposits only if the shares rise to become worth 2.30 euros. The market price is currently 1.45 euros, meaning savers are looking at an immediate loss of almost 40 per cent.
Former expats Keith Randall, 81, and wife Davina are two British victims of the CAM debacle. ‘We put all our money, which was 77,000 euros, into the bank,’ says Davina. ‘They assured us there was no risk whatsoever. Now we stand to lose 40 per cent of it.
‘We do not want shares because as soon as we take them we will have lost 40 per cent. We asked what the position was if we do not swap. We were told we would lose our savings. But we need the money – we are desperate.’
The couple, who are both retired and have lived in Spain for 14 years, are now renting a bungalow in Essex and renting out their house near Alicante. Although they had been thinking about a return to England, the crisis over their savings made their minds up.
Faith Baxter-Hague is another British expat who found she had been robbed of a large part of her savings at CAM.
She said: ‘The document I was given described the contract as a “deposito” or deposit.’ It emerged that she had in fact bought preference shares.
Like Davina and Keith, she has been offered a chance to convert her savings into Sabadell shares and take an immediate loss. Victims have until July 27 to accept.
Sabadell has admitted: ‘Yes, there was very bad mis-selling by CAM. The shares that customers were being sold for 100 euros were actually worth only 14 to 30 euros on the secondary market.’ That is the unofficial market where CAM customers were told they could recoup their investment.
But this is just the tip of the iceberg. Christina Brady, Costa Blanca area manager for adviser Blacktower Financial Management, said: ‘It is a problem across Spain and should be big news, but there are so many things going on with the banks that it is getting lost.’
I popped into my branch...and walked into a nightmare
Faith Baxter-Hague is one of the thousands of Brits living in Spain who has fallen victim to the banks’ mis-selling.
She is 58, divorced and moved to Marbella in 2003. Until 2009, she was self-employed, working with estate agents helping British emigrants to find a property.
‘I am no expert and I don’t pretend to be,’ she said. ‘When people ask me detailed financial or legal questions, I introduce them to a financial adviser or a bank and a lawyer.’
Stunned: Faith Baxter-Hague says she expects to lose about £16,000 from her savings
When Faith moved to Spain, she sold her British property and put the proceeds into a current account with Banesto until 2009.
She said: ‘For more than five years, it was simply in a current account. In 2009, with the cost of living going up, I realised I should try to get a decent rate of return to protect the value of my savings.’
She transferred it to the CAM bank as staff spoke English and offered a good rate of interest.
Faith said: ‘The manager explained that she could give me just over seven per cent. That was far better than what Barclays in Spain were offering.
‘She did say repeatedly that this money should be regarded as a long-term investment, but that suited me because I had some money to live off in my current account.
‘So I put 50,000 euros into what I understood was a long-term deposit account. I don’t speak much Spanish, but the document I was given described the contract as a deposito, or deposit.
‘I only realised fully what had happened when I went into the bank in March or April because no interest had been paid on my one-year deposit.
‘That’s when I was told about my preference shares.’
Faith was told there was no interest payment because the bank had been wound up. ‘At the time, a couple of months ago, it seemed the preference shares I had bought – without meaning to or knowing it – were actually valueless. I saw the manager. She insisted that she had explained what I was buying. But that simply isn’t true. I have never bought a share in my life. And the last thing anybody would have bought in 2009 were shares in a Spanish bank.’
Faith stands to lose about £16,000 as a result.
She expects she will have to sign the contract to convert her savings into overpriced Sabadell shares, even though it includes a clause waiving all her rights to later redress.
Like many others, she was told that she either signs or loses everything.
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