Spain to Start Arbitration Over Mis-Sold Bankia Products

Spain will create an arbitration process for minority investors who lost money buying hybrid products from lenders that now form part of the Bankia group, Economy Minister Luis de Guindos said.

The process will apply to “the most flagrant cases where bad practice has been demonstrated in the marketing of these complex financial products, and particularly when the buyers were incapable of understanding the product,” de Guindos told a parliamentary committee today in Madrid. Clients will recover all of their investments if mis-selling is proved, he said.

The conditions of a European bailout for Spanish banks forced losses on junior debt holders, including depositors who bought preferred shares that were marketed as safe yet high- yielding investments as late as 2009. De Guindos has said the products should never have been sold to such clients.

Bankia was formed in 2010 from the merger of seven Spanish savings banks including Caja Madrid. The firm was listed on the stock exchange in 2011 as part of the previous government’s efforts to clean up the banking industry. Overwhelmed by losses linked to the real-estate collapse, the Bankia group was nationalized this year and is the biggest recipient of aid from Spain’s 100 billion-euro European bank bailout.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net; Frank Connelly at fconnelly@bloomberg.net

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