EU facing 51 lawsuits worth BILLIONS of pounds for shutting down Spanish bank

Disgruntled investors have filed the lawsuits against the bloc’s regulations for forcing the sale of Banco Popular in June, losing shareholders and junior bondholders about £4.44billion.

The deluge of cases, filed with the EU’s General Court, are the first legal test of how the EU applies new bank rules aimed at forcing investors to bear the costs of rescuing a failing lender before taxpayer money is used.

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European authorities intervened following a run on the bank and a sale was hastily organised after the European Central Bank determined the lender was likely to fail.

The EU’s regulation agency forced the sale of the lender, then the sixth largest in Spain, to bigger rival Santander for the nominal price of one euro.

Spanish taxpayers were spared from footing the bill and the bank’s savers and activities were not affected, as Santander took over the ailing rival.

But the rescue, decided overnight on June 7 by the EU’s bank disposal agency – the Single Resolution Board (SRB) – and the EU’s executive Commission, hit some of the bank’s bond and stock investors hard. 

Hitting back 51 lawsuits have been lodged with the EU General Court before the August 17 deadline against the SRB, and in some cases also against the Commission. 

The lawsuits are among the highest number of legal actions against a single EU decision ever filed before the General Court, a court official said.

The General Court hears cases against EU institutions andiIts decisions can be appealed on points of law to the European Court of Justice.

Plaintiffs include big international investment funds, such as Algebris and Anchorage Capital, Spanish pension funds, consumers groups, Italian cooperative banks and Mexican investors, according to information shown on the website of the EU court.

The SRB declined to comment on the cases.

There is no fixed deadline for the tribunal to deliver its judgement, a process that takes on average 18 months, court statistics show.

To date, the only similar case was one last year related to the Slovenian government’s rescue of local banks in 2013, where EU judges ruled it was legally sound to impose losses on bank investors. 

The case preceded the entry into force of the new, tougher rules on bailouts.

The legal action comes as talks are under way to partly overhaul the EU’s bank rescue regime, less than two years after its introduction.

The forced shutdown of Banco Popular was caused by a bank run, which has, in turn, spurred talks on how to prevent a repeat in the future.

EU states are considering measures which would allow them to temporarily stop people withdrawing money from their accounts when a bank is facing difficulties, a document prepared by the Estonian presidency of the EU said.

Discussions are still ongoing on this issue, a spokesman for the presidency said on Tuesday.

Parallel talks are also being held on whether to exclude depositors from the list of investors who may be forced to cover bank losses in case of a rescue, an EU source said.

EU bank rescue rules prescribe that shareholders and bondholders should be hit first when a lender fails, but deposits above 100,000 euros could also be affected. That helped spread panic among Banco Popular’s savers.

The European Parliament is expected to vote in the coming weeks on changes to rules governing the ranking of bank creditors in cases of insolvency.