European justice exempts Banco Santander from paying Banco Popular shareholders

The European Court of Justice (ECJ) on Thursday issued a verdict acquitting Banco Santander of compensation for attending Banco Popular’s capital increase a few months before the firm’s serious accounting problems were resolved. Community justice believes that the regulations on the decision of banking entities force the operation to lose losses to shareholders.

The case has been going on for more than five years. Two investors attended a capital increase of Banco Popular, which was implemented in June 2016, to try to compensate for the capital imbalance in the group. A year later, the community government made a decision on the bank’s decision, taking its share price to zero and rewarding Banco Santander with a one-euro testimony. These investors went to court to demand a return on investment in this operation. They were right in the first instance, but Santander, as the successor to Popular, appealed the sentence and a new court transferred the case to the European justice system.

The two plaintiffs argue that the share purchase agreement should be terminated for two reasons. Or due to an error caused by the fact that it was made “on the basis of incomplete and inaccurate accounting and capital information provided in the prospectus”. Or “falsification and concealment of ancestral information due to fraud.”

The Court argues that this compensation is contrary to the European directives concerning the resolution of financial entities. “The council opposes […] Those who have purchased shares in connection with the offer of a public subscription issued by the said entity or company, before the commencement of this decision procedure, take liability action against this entity or company or its successor entity. The information provided in the prospectus, as provided by the directive on the prospectus, or a lawsuit to cancel the subscription agreement for these shares, ”he said.

The Court of Justice recalls in its judgment that the Restructuring and Resolution Directive establishes the principle that the shareholders of a credit institution or investment services company, then the creditors who are the object of the settlement procedure, should first be liable for the losses resulting from that procedure. In short, the bank resolution was the way in which the European Commission identified an alternative to saving public money, as it did in the financial crisis. Banco Popular was a prime example of these transactions.

However, the judges note that European law provides a guarantee that if shareholders and creditors affected by the resolution suffered more losses from the operation than they did during the ordinary liquidation, they could seek a return of the resolution in court. The difference.