Spanish Banks Don't Need to Repay Borrowers for Excess Interest, Says Court Adviser
July 13 2016 - 5:50AM
Dow Jones News
MADRID—Spanish banks don't need to reimburse hundreds of
millions of euros to borrowers who signed mortgage contracts that
prevented them from benefiting from a steady drop in interest
rates, an adviser to the European Union's top court said on
Wednesday.
If the European Court of Justice were to follow the adviser's
opinion, it would be a financial relief for Spanish lenders, such
as Banco Bilbao Vizcaya Argentaria SA and CaixaBank SA, which are
struggling with negative interest rates, historically sluggish
demand for mortgages and an uncertain political and economic
outlook.
Judges in Spain already have ruled that many of the country's
banks violated consumer protection laws when they established what
the courts called unfair and nontransparent limits on how far
clients' monthly interest payments could fall. Banks were ordered
to remove the floors in clients' mortgage contracts and pay them
back the excess interest payments they had made, but only back to
May 2013.
Spanish consumer association Adicae had asked the European
Union's top court to decide whether the Spanish judges' rulings
should be expanded to include excess interest payments made before
May 2013.
The adviser to the European Court of Justice said on Wednesday
that Spanish banks don't need to reimburse clients before May
2013.
"The advocate general suggests that the court should hold that
the temporal limit on the effects of the invalidity of 'floor'
clauses included in mortgage loan agreements in Spain is compatible
with the [EU] directive," the European Court of Justice said in a
two-page statement summarizing Advocate General Paolo Mengozzi's
opinion. "A national supreme court may balance consumer protection
with macroeconomic issues," the statement said.
The opinions issued by advisers are not binding for the European
Court of Justice, but they are often a good indication of the final
verdict.
A final verdict is expected by year-end.
It would be particularly welcome news for BBVA, Spain's No. 2
lender by market value, if the court were to follow the adviser's
opinion.
BBVA faces the possibility of retroactively owing mortgage
borrowers around €2.5 billion ($2.8 billion) if the court rejects
the adviser's opinion, according to an estimate published by Carlos
Garcí a Gonzá lez, an analyst at Socié té Gé né rale SA, in a May
12 research note.
CaixaBank and Banco de Sabadell SA would owe around €1.5
billion, while Banco Popular Españ ol SA would be staring at
repayments of around €1 billion, according to Mr. Garcí a Gonzá
lez's estimates. Liberbank SA would be particularly vulnerable,
facing €500 million in repayments, which would be a massive hit for
the small, regional lender.
Those figures do not include provisions some of the banks have
already made to address potential legal claims.
Shares in all the Spanish banks affected by the opinion were
higher on Wednesday morning.
CaixaBank, as well as Popular, began to make provisions last
year in anticipation of an unfavorable court ruling by a Spanish
judge, triggering a decline in profits in recent quarters.
They made provisions back to May 2013, the date when a top
Spanish court first ruled that some mortgage floors needed to be
removed. That original decision only applied to several banks. A
ruling by a Madrid judge in April applied to most other major
Spanish banks.
Banco Santander SA and Bankinter SA, which analysts say didn't
include floors on interest payments in their mortgage contracts,
have avoided the drawn-out legal cases.
While executives at CaixaBank and other lenders have removed the
floors, they still say they will appeal the Spanish judges'
rulings.
Sabadell, by contrast, has dug in its heels. Executives have
been adamant that their interest-rate floors were clearly explained
and understood by clients, so there is no need to remove them.
Spanish banks began to include a bottom limit on how far
payments could fall starting about half a decade ago to head off
potential losses as interest rates began to fall.
The bulk of Spanish mortgages are variable-rate loans tied to
the euro interbank offered rate, known as Euribor, which has
plunged below zero as central banks enact their easy-money
policies. That drop in Euribor should have benefited mortgage
borrowers' monthly payments.
But if they had a mortgage floor, their payments couldn't fall
below a certain amount—a bust for their monthly bills but a boon
for Spanish banks.
Write to Jeannette Neumann at jeannette.neumann@wsj.com
(END) Dow Jones Newswires
July 13, 2016 05:35 ET (09:35 GMT)
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