But what are actually preferreds?

Recently a Court of Algeciras has given the reason to a marriage that entrusted its bank claim to our Office. It is a matter of preferred shares. They have managed to recover their investment (€ 164,000), since the Judge considered proven that the bank misleadingly commercialised the product and therefore the consent given by our clients was not free, it was “vitiated” by mistake.

Date 25/06/2015

Preferred shares are a complex banking and risky investment product. For this reason, the law establishes a high level of information demand by financial institutions and in favour of retail investors, who are usually consumers without financial knowledge and who trust that their lifelong bank is giving them honest advice and appropriate to your depositor's profile.

In general, when we see in the press that a case of preference has been won, what has normally happened, as in our case of Algeciras, is that the financial institution took the initiative to contact a specific type of client (with savings ) and has offered you the preferred as a safe and risk-free product, guaranteed by the entity itself, telling you that it could recover the investment at any time (or not informing you that you run the risk of losing all the capital).

That is to say, the bank or the bank not only commercialised the preferred ones but also advised the clients, since normally we speak of a contractor profile without specialised studies and saver, who trust the professionals. This is the typical victim of bank abuse. They sign the purchase orders for these securities by mistake and it is an error induced by the financial institution itself, which leads them to hire something that they would not have really wanted if they had been informed of the risks.

Banks often insist that contracts are clear and the product is clearly described, but just take a look at the format of those documents to discover that it is not. The size of the letter, the absence of prominent paragraphs, the long and subordinate sentences, the use of technical terms incomprehensible to the layman, the inclusion of generic information outside the specific product (international regulations or internal policy of the entity), all This far from providing the client with sufficient elements of judgement to make a real representation of the product, rather serves to hide the information that might really interest him. That is, rather than light, they dazzle.

But what are really preferreds? For the answers of some bank employees in the Courts, even they do not know ... Let me, however, a few simple strokes on what consumers do know today of preferred shares: at the outset, we know that they are not preferred and there is deception already in its denomination because in case of insolvency of the issuer the preferentist is the last one to collect. We know that it is a useful instrument for banks to provide their own resources (in a context of lack of liquidity as in the acute phase of the financial crisis). We know that your profitability is not guaranteed by the bank and is also low. We know that they are not covered by the deposit guarantee fund. We know that they have a perpetual character and that they are very volatile and, therefore, the preferentist, as has happened, can lose all the capital invested. Was it really so difficult to clearly inform customers of these characteristics? No, it was not difficult. But if they had been informed they would not have given their consent ...

Although the favourable judgement that our clients have received is not yet firm, we can affirm that in general the Spanish judges are being receptive to this type of claims and we are in a phase of boom of the right of consumption (which by the way comes from the many sometimes unfairly insulted European Union) so we encourage those of our customers who are reflected in this comment to trust us to claim.

Juan Enrique Montenegro - Balms Abogados Marbella


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