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Spanish Regulator Fines Santander Over Sale of Bonds to Clients

Spain’s markets regulator fined Banco Santander SA (SAN), the country’s largest bank, 16.9 million euros ($23 million) over “serious” failings in the way it sold convertible bonds to customers before the financial crisis.

The CNMV said the lender broke rules governing relations with clients and the information it had on customers, according to two rulings published in the official gazette today. The bank has appealed, saying the CNMV approved the sale at the time, according to a statement from the lender.

In 2007, Santander sold through its branches 7 billion euros of bonds that would mandatorily convert into its own stock to fund its purchase of ABN Amro NV’s Brazilian unit. By the time the bonds were exchanged into shares in 2012, the stock had lost about half its value as Spain battled a financial crisis and recession. Investors at Santander’s annual shareholder meeting had called on executives to provide redress.

“It seems quite right and reasonable that the regulator should impose a fine, though it looks small to me,” said Jose de Zubeldia, whose wife invested 100,000 euros in the securities. “Santander’s sin was to foist this product on its clients when funding markets had run dry and it needed money quickly for its transaction in Brazil. It was a big mistake.” De Zubeldia said the bank had reimbursed his wife’s investment.

The fine comes as other banks including state-owned Bankia SA (BKIA) are being forced to compensate clients for improperly selling customers complex securities they may not have understood. Since the European bailout forced losses on junior bondholders in Bankia -- many of whom were depositors unaware they also owned the securities -- the government has moved to restrict sales of similar products to retail investors.

Valores Santander

The bonds, known as Valores Santander, had a conversion price of 12.96 euros. That compares with less than 6 euros in October 2012, when the securities were exchanged for Santander shares, and 6.54 euros today.

The securities offered an annual interest rate of 7.5 percent until October 2008, before switching to a rate of 2.75 percentage points above Euribor. The bank set out the risks for investors in the bonds’ prospectus, including the final conversion date and the possibility of stock declines.

Separately, the Madrid-based CNMV said it would fine Jaime Botin, brother of Santander Chairman Emilio Botin, 500,000 euros for failing to provide the necessary information about his stake in Bankinter SA, another Spanish lender. He owns 24 percent of Bankinter, according to CNMV records.

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

To contact the editor responsible for this story: Stephen Foxwell at sfoxwell@bloomberg.net

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