October 20, 2017 / 12:11 PM / a year ago

Banco Popular investors denied access to resolution documents

LONDON, Oct 20 (IFR) - Former investors in Banco Popular, the Spanish bank bought by Santander for €1 after a dramatic resolution in June, have had their attempts to obtain documents blocked by the European authorities and are considering their next steps in seeking compensation.

Holders of equity and junior debt were effectively wiped out after the European Union’s Single Resolution Board, acting on a European Central Bank assessment, decided to swap non-senior debt for equity. The move allowed Santander to buy the whole entity for a token €1 after an €8bn hole emerged in the bank’s finances.

The European Commission approved the move, as did Spain’s local banking resolution authority FROB. The decision was taken after authorities said the lender had suffered a run on its corporate deposits wiping out the emergency liquidity assistance given by the ECB.

However, certain aggrieved bondholders - Algebris (UK), Ronit Capital and Anchorage Capital - have challenged the decision on August 17 and since asked the ECB, EC and SRB to publish the documents that led them to the decision to put the bank into resolution, in particular a valuation report produced by Deloitte.

The bondholder group is represented by law firm Quinn Emanuel. A separate group of equity investors, represented by Kirkland & Ellis, which includes Banco Popular’s largest shareholder from Mexico prior to its collapse, have also been seeking to access the documents without success.

IFR has seen some of the extensive correspondence between the claimants and the authorities – 19 applications in all. The latter say they do not want to release the information for the sake of preserving financial stability. The claimants say this should no longer be a concern since the bank has now been resolved.

“The redacted information cannot, now, be commercially confidential, or otherwise justified for redaction, given that it is purely historic,” said Quinn Emanuel in one of the letters to the SRB seen by IFR.

By sticking to this line, investors say the authorities are making it hard for them to have their claims properly assessed.

“The AHG [ad hoc bondholder group] are entitled to [see the] document ... on the basis of their overriding fundamental rights and interests in understanding the basis upon which their property was expropriated and its value extinguished,” said one letter to the EC from Quinn Emanuel, which added that disclosure is in the public’s interest.

The claimants also say that the details of the sales process to Santander have not been fully published. The Mexican shareholders, linked to billionaire Antonio del Valle, had been approached about a possible rights issue prior to the sale to Santander, suggesting alternatives were possible.

The ECB replied on September 29, granting partial access to redacted documents, but refused to disclose further details of the amount of ELA provided to Banco Popular prior to its resolution.

“The ECB is of the opinion that even the ex post publication of the ELA ceiling and ELA amount provided, as in the case at hand, would reduce the NCBs’ [National Central Banks] flexibility to tailor ELA to specific circumstances in future cases,” the ECB wrote.

“Furthermore the publication of the ELA ceiling and ELA amount provided could lead to an expectation that the ECB will act – in a similar way – even when it judges it would not be appropriate to do so. It could also fuel unwarranted market speculation...

“The ECB is bound by a duty of professional secrecy, which aims to protect not only the credit institution directly concerned but also the functioning of the banking system as a whole,” it said.

It is understood that Quinn Emanuel will next ask the SRB appeal board to grant access to the documents. At the same time, an appeal to annul the resolution decision are waiting to be heard at the EU general court.

The Mexican shareholders are considering filing a complaint against Spanish authorities under the Mexican-Spanish bilateral investment treaty, claiming this has been breached.

Overall more than 70 separate legal claims have been brought by Banco Popular investors against the authorities’ decision.

A parliamentary commission in Spain has also asked the SRB to release the Deloitte valuation report and wants the SRB’s chair Elke Koning to appear before it in December. (Reporting by Christopher Spink)

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