London/Madrid - Shareholders in Spain’s Bankia face an
uphill battle to win any compensation for the collapse in the value of their
investment less than a year after its Madrid flotation due to the cost and
difficulty in proving who was at fault.
Shares in Bankia, which has so far asked the state for
€23.5bn to cover exposures to real estate, deteriorating loans and accounting
discrepancies, have fallen 58% since the start of May. The stock is now 71%
below the €3.75 per share it listed at in July last year.
That has virtually wiped out the investments of thousands of
ordinary Spaniards who, bombarded by an intense TV and radio advertising
campaign, bought a total of 60% of the €3.1bn sale - investing an average of €6
Complaints from consumer groups and minority shareholder
associations have grown louder in recent weeks, and several have already said
they are looking into legal options, primarily targeted at the Bank of Spain,
stock market regulator National Securities Market Commission (CNMV) and auditor
But while class action lawsuits are relatively common in the
US thanks to more attractive litigation procedures, there is little track
record of successful action in Europe.
“You either need to point to a misstatement; something which
is misleading or untrue in the body of the prospectus, or you’ve got to find
something which is a material omission which was dishonestly concealed,” said
Tony Katz, a commercial litigation partner at Orrick.
“The other thing one needs to prove is ’causation’ and that
is particularly difficult because you have to eliminate the other factors which
are in play.”
Bankia’s offering prospectus included 16 pages of
comprehensive and wide-reaching risk factors which it warned could negatively
impact its business.
Lawyers said those would be the first line of defence if any
action was taken, so investors face the difficult task of proving those running
the sale knew more than they let on, most likely around the bank’s working
capital levels or financials.
The bank’s parent group BFA said on Monday it had restated
its 2011 results to reflect a €3.3bn loss, rather than a €41m profit following
a review of its loan portfolios and capital needs.
In 2008, some 16 000 shareholders in Deutsche Telekom sued
the company for up to €80m, alleging it misled investors about its worth at the
time of its third privatisation share sale, and also failed to tell them about
acquisition plans that led to a big share price fall.
But after a four-year battle, the claim was rejected by a
judge in Frankfurt this month who said there was no evidence the offering
prospectus had included misleading statements.
Cost is another key issue. While claimants in the US only
pay fees if they win, in Europe there are not only upfront costs but
shareholders can be left with hefty legal bills from the defendant if they
Bankers familiar with Bankia’s listing process said they did
not see how the backlash could develop into a serious legal risk, however
unpalatable the sight of angry savers was.
“What do they want - their money back because the share
price fell? I don’t think you can argue that,” said one.
That view was echoed by some small shareholders, who said
they realised getting money back in any way would be tough.
Yet even if suing proves unsuccessful, questions will
inevitably be asked over how retail investors were sold the shares, potentially
raising the prospect of misselling claims.
The listings of Bankia and its smaller rival Banca Civica,
both largely shunned by international investors, were seen as a key test of
government-driven measures to increase solvency ratios and reassure global markets
about the stability of Spain’s financial system.
At the time branch managers said a lot of pressure had been
put on retail investors through an intense sales campaign.
ADICAE, a consumer organisation which represents banks,
savings banks and insurance users, puts the number of small shareholders in
Bankia at 500 000, of which roughly 120 000 were savers that ended up with
products such as preference shares.
The group - which usually only deals with consumer and not
shareholder issues - is getting involved in the Bankia situation because of
what it denounced as “abuses” in the way shares were sold to customers, through
branches networks and offered to clients as savings products.
“I don’t know how the Bank of Spain and the CNMV could have
allowed this,” said Rafa Macillas, 43, who said his father had ended up with
preference shares in Bankia. “We can’t do anything as individuals, as a
collective we may get somewhere.”
The Spanish Association of Minority Shareholders of Public
Companies, AEMEC, has also been looking at legal options, and slammed the way
implicit government backing for Bankia’s listing had masked a bad deal for
Economy minister Luis de Guindos has so far discarded the
idea of a full-on investigation into the saga, resisting calls for former
chairperson and government ally Rodrigo Rato to be publically grilled.
The CNMV, meanwhile, has defended its role in Bankia’s IPO,
saying it pressed for 40% of the free float to be sold to institutional
investors, helping stabilise the stock price.
But with the lines of mainly elderly couples queueing up for
information a damaging image, the plight of small shareholders is likely to
remain a thorn in the side of a government with deep ties to Bankia’s
management at the time of its IPO.
“This is not going away any time soon,” said one senior
investment banker in Madrid.