Again the highly controversial “Preferential shares” (or preferentes), are a subject of debate in all public forums, this time as a consequence of a judgement of the Provincial Audience of Vizcaya with regard to the bank “Santander”.
For those who are not aware of the evolution of these shares, perhaps it is convenient to sum up the situation which their owners have been left in.
Preferential shares are a hybrid product between equities and fixed income. This means that the remuneration that corresponds to the owner depends on the profit made by the bank or company that sold the share. Moreover, having no date of expiry, their owners are forced to sell their shares on the market if they want to recoup their investment.
The preferentes became fashionable for a time and were purchased by customers who were not usually engaged in the buying and selling of complex banking products. Sometimes these buyers invested their life savings believing that they would have a fixed remuneration or that the product had an expiry date. Following the economic downturn, the profitability of the preferentes disappeared and the only way to recover the investment was to sell them at an extraordinarily low price or exchange them.
Faced with this panorama, it is pleasant news that the Provincial Audience of Vizcaya has sentenced Banco Santander to return 100,000 euros to a buyer of preferentes, minus the amounts received and yields paid.
Initially, the Bank argued that the customer had sufficient financial expertise to acquire the preferentes, since he had a university degree and had bought a similar product before. However, quite rightly, the audience rejected this approach, considering that the mere fact of having completed higher education and having already bought some kind of banking product does not connote that the Bank does not have to inform the client thoroughly about the nature of what is being bought.
On the contrary, the Provincial Audience declares that banks are obliged to provide “sufficient customer information about the creation, operation and management of complex financial products “.
This judgement is promising for all those affected by the preferentes, though it is unknown to what extent other judicial bodies share the opinion of the Provincial Audience of Vizcaya. From this blog, we will keep stakeholders informed of any news on the subject.
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Article by Mark Athos Franklin, native English lawyer at the Rodriguez Bernal legal practice.