CaixaBank Sees $1.4 Billion Hit From Refunding Mortgage Interest

  • The lender has already provisioned 515 million euros
  • A floor clause prevents clients from benefit of lower rates

CaixaBank SA expects to refund homeowners as much as 1.25 billion euros ($1.4 billion) should Spanish courts expand a ruling against variable mortgages that limit the benefits to borrowers of a drop in interest rates.

Spain’s third-largest bank has already provisioned 515 million euros for the removal of lower rate limits on these mortgages and may have to set aside an additional 750 million euros, the lender said in a filing Wednesday.

Earlier this year, a Madrid court ordered about 40 lenders, including CaixaBank, to refund borrowers for the extra interest they paid on mortgages issued after May 2013, when Spain’s Supreme Court ruled against the so-called floors.

Banks appealed and homeowners in the class-action case are now asking the higher court to expand the decision to include mortgages before 2013. CaixaBank doesn’t think an extension of the original ruling is likely, it said in the filing.

At issue are variable-rate contracts that set a minimum monthly rate regardless of market conditions. Such floors prevented homeowners from benefiting as the benchmark plunged from 5.39 percent in 2008 to a record low of minus 0.013 percent in May.

Most home loans in Spain are pegged to the 12-month euro interbank-offered rate, or Euribor. CaixaBank removed floors from its mortgage contracts last year.

Banco Bilbao Vizcaya Argentaria SA is the most exposed in absolute terms to a retroactive extension of the ruling as it would have to make 1.8 billion euros of new provisions, Goldman Sachs Group Inc. analysts Jose Abad and Izabel Cameron said in a note to clients last week. Goldman Sachs estimates the impact on net income would be as much as 36 percent in 2016 for BBVA and CaixaBank.

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