European Court says Novobanco Espanhã does not have to compensate small investors

Novobanco Espanhã will not have to shell out millions in compensation to small investors who ploughed their life’s savings into Banco Espírito Santo bonds and lost everything when the bank collapsed in 2014.

The European Union’s Court of Justice advocate-general, Jean Ricard de la Tour in a report of the conclusions presented by the judges.

At issue were requests sent by the Spanish Supreme Court on the possible rights of Spanish clients that had bought financial products, in particular bonds from BES Espanhã, and tying to claim compensation from Novobanco Espanhã, created from the remnants of the failed bank.

One of the cases studied discussed a mortgage contacted by a citizen with BES Espanhã that had a minimum 2% rate clause that would be revoked years later. When BES was wound up in 2014, the loan was transferred to Novobanco Espanhã, with the client demanding compensation for the amounts paid at the minimum rate.

Novobanco Espanhã refused to pay, alleging that the amounts unduly charged by BES Espanhã were not assigned to the financial institution that rose from the ashes of the bank led by Ricardo Salgado.

Moreover, the argument from Novo Banco Espanhã, bought by Abanca in 2021, in all of the cases was based on the same presupposition: that any losses incurred by BES Espanhã clients could not be demanded from Novobanco for amounts possibly received in an abusive way by the branch in the neighbouring country from the bank run by Ricardo Salgado that were not transferred to the balance of Novobanco as part of the winding up process.

The advocate-general concluded after studying the cases, that the “individuals could not invoke the principle of legitimate trust in relation to a transitional ‘bridge’ bank, a body governed by private law which does not have prerogatives which go beyond ordinary law, created as a reorganisation measure for a bank of which they were initially customers, in order to hold that bridge bank liable for the pre-contractual and contractual obligations attached to the contracts concluded with the bank which was the subject of the reorganisation measure.”