EU pushing Spain to 'burn' subordinated bondholders
EU officials are pushing Spain to inflict billions of euros of losses on subordinated bondholders and perference share holders -- similar to what happened in Irish banks when they were recapitialised.
Spanish banks have €67bn of subordinated and other hybrid debt outstanding, according to the Bank of Spain, much of which was sold to retail investors as savings products.
"The difference between Spain and other European countries is that these instruments are held mainly by retail investors," said Daragh Quinn, a banking analyst at Nomura.
"People who bought them might not have known exactly what they were investing in."
Hundreds of thousands of small shareholders who bought instruments such as preference shares are likely to be affected.
Luis de Guindos, Spain's finance minister, has admitted that investors should not have been sold the savings products and he had sought to minimise their potential losses under a eurozone rescue. "It was an error to sell the the preference shares, and we will have to look for solutions," he said in May.
Under the agreement, Spain will have to extend consumer protection rules and restrict the sale of such financial instruments to retail clients.
Eurozone finance ministers on Monday agreed a rescue package of up to €100bn for Spanish banks devastated by a burst housing bubble.
"This puts us in a position to clean up the Spanish financial system that I think is going to go very deep," Mr de Guindos said after the meeting in Brussels, where ministers approved the deal and will sign off on it on July 20.
"We must make maximum use of the next 18 months to do this clean-up. . . and bring down debt levels in the Spanish economy," he said.
Following the formal signing of the deal, Madrid expects €30bn in a first tranche of money that will be available immediately for state-rescued banks that urgently need funds.
That will make Spain the fourth eurozone nation to receive emergency aid.
Mr De Guindos said Finland was the only eurozone country that has asked for collateral on the loans to Spain. (Reuters)