Banco Popular junior bondholders who were wiped out by the Spanish bank’s collapse have added their lawsuit to dozens already filed by aggrieved investors.
The group filed their challenge at the European Union’s General Court in Luxembourg, yesterday, arguing the resolution process was “over hasty” and violated professional secrecy. That sets up a court battle with the euro area’s bank-failure authority and the European Commission over their handling of the crisis.
The Single Resolution Board’s actions, “including public comments that it was ‘watching’ Banco Popular, undermined investor confidence and resulted in a run on the bank,” Richard East, a lawyer at Quinn Emanuel Urquhart & Sullivan who represents the bondholders, said in a statement. “Ironically, the SRB itself made statements that exacerbated the ‘formidable run on liquidity,’ which were then relied upon to justify the resolution scheme.”
The Brussels-based SRB forcibly sold Banco Popular to Banco Santander on June 7, wiping out equity and about €2bn ($2.3bn) of junior bonds that had traded at face value as recently as April. New York-based Anchorage Capital Group lost about $140mn in its main fund, a person familiar with the matter said last month.
Anchorage, Algebris Investments and Ronit Capital are among investors seeking to challenge the forced write down of additional Tier 1 and Lower Tier 2 bonds. ECB Vice President Vitor Constancio said after the sale that a “bank run” had sapped Banco Popular’s liquidity.
The Brussels-based commission said it hadn’t yet been notified of yesterday’s lawsuit by Banco Popular bondholders. “Resolution decisions are EU acts and can be challenged,” leaving the final decision up to the bloc’s courts, it said in an emailed statement.
The SRB didn’t immediately respond to an emailed request for comment.
The bondholders said the SRB’s head Elke Koenig violated professional secrecy when she told Bloomberg on May 23 that “of course Banco Popular is also a case we are watching.”
The suit challenges the commission’s “failure to properly assess the SRB resolution scheme” and the failure by both the SRB and the commission to carry out “an independent and transparent investigation” of leaks that had an “adverse impact.”
SRB head Koenig in July rejected allegations that her authority’s actions accelerated the collapse of Banco Popular by spurring withdrawals and weakening the lender before it was wound down and sold to Banco Santander SA. Koenig faced a barrage of questions July 11 from lawmakers in the European Parliament, including claims that comments she had made on Bloomberg TV contributed to the deterioration of the bank’s liquidity.
Quinn Emanuel represents holders of about €850mn of junior debt, according to a letter dated July 10.
Earlier this month, a Mexican investor group filed a separate challenge at the EU tribunal, seeking to nullify the SRB’s June decision, arguing that the watchdog caused the crisis at Popular when Koenig publicly suggested that the agency was examining the bank.
Investors haven’t had much luck at EU courts challenging regulatory actions during bank bailouts and restructurings. Just last month, the General Court threw out a request by Banco Espirito Santo creditors to annul a 2014 European Commission decision on the lender’s resolution plan.
Challenges at the court take 19 months on average, and with one last appeal possible, both sides could wait three years at least until a final decision.