Bloomberg News

Spanish Ire Against Bankers Spills Over in City Center Protests

June 01, 2011

June 1 (Bloomberg) -- After losing 8,000 euros ($11,500) on an interest-rate swap sold with her mortgage, Maria Jesus del Rio joined demonstrators in her home town of Soria as protests against politicians and bankers spilled onto Spanish streets.

“There’s a growing feeling that the banks have played a big part in the problems now facing Spain,” said del Rio, 37, who gathered with a throng of people in the town’s main square last week as protests that began May 15 swelled across the country. “There’s real anger with banks that got out of control.”

A five-fold surge in bank lending in the decade up to 2007 has left its scars on customers as Spain’s property-fueled boom turned to bust, pushing unemployment above 21 percent and driving companies and consumers into default.

At least 28,000 people gathered in Madrid’s Puerta del Sol central square in the run-up to Spanish regional elections on May 22, according to organizers including the 15-M Movement, which says it’s protesting against “the way bankers and politicians have mismanaged the socio-economical crisis.” An assembly of demonstrators agreed on May 29 to continue the protest camp in Puerta del Sol this week after the movement also formed committees to take their message into city neighborhoods, Dante Scherma, a 15-M spokesman, said by phone.

Many Spaniards, asked by the government to sacrifice living standards and years in retirement to help fix public finances, have been incensed by Spain bailing out savings banks that were crippled by bad loans linked to real estate, said Luis Garicano, a professor at the London School of Economics.

Bailout Costs

“The anger of the youth is real because there’s this feeling that the system is rigged so that bankers make mistakes and don’t suffer the consequences -- while they do,” he said in a phone interview. “Anti-banker sentiment is serious because it risks clouding the judgment of politicians when it comes to taking serious decisions.”

The cost of succoring Spanish savings banks with loans from a government rescue fund has risen to about 11 billion euros. The Bank of Spain has identified a further capital shortfall of about 14 billion euros, some of which will be covered by the rescue fund, known as FROB.

So far, that amount pales in comparison with the money spent in countries such as the U.K., where Royal Bank of Scotland Group Plc alone needed a 45 billion-pound government bailout. At about 1 percent of gross domestic product, the cost of Spain’s rescue in the form of loans from a government fund compares with as much as 100 billion euros to be spent by Ireland on cleaning up its banks, a bill that’s about two-thirds the size of the country’s economy.

‘Banco Sintander’

To be fair, Spaniards need to consider their own role in the country’s economic story of the past decade before singling out people such as bankers or politicians for blame, said Aleix Salo, a cartoonist who has published a short film and comic book called “Espanistan” that satirizes modern Spain.

His comic book tells the story of Fredo, a 20-something without work and his quest to cancel his mortgage that takes him to regions of the fictional country including the sinister “Financial District” where business lobbies dictate the country’s future.

There, a character named “Amalio Botin,” who runs a lender called “Banco Sintander,” transforms into a troll when Fredo and friends ask him to annul the loan. In real life, Emilio Botin is chairman of Banco Santander SA, Spain’s biggest bank. Botin faced protests from about 60 placard-wielding students on a May 30 visit to Madrid’s Carlos III University, El Pais reported.

‘Played Their Part’

A spokesman for Santander declined to comment in a phone interview. Santander, which hasn’t tapped any rescue funds, employs about 34,000 people in Spain and earned 8.18 billion euros last year.

“All sectors of Spanish society have played their part in what has happened in this country,” said Salo, adding that he was still glad people were demonstrating because that meant they were participating in politics. “I’m quite sure that just about everyone who’s out there on the streets protesting still has a bank account.”

The 15-M movement and other organizers of street protests are calling for action against banks among demands that include cuts in military spending and closure of nuclear power plants.

Proposals approved May 20 at a general assembly called in Puerta del Sol included demands for “multiple measures” to stem banking abuses and immediate nationalization of lenders rescued by the state. From 17 percent in 2007, unemployment among Spaniards aged under 25 stands above 44 percent, a rate that compares with 7.9 percent for Germany, according to European Central Bank data.

Interest-Rate Swap

The protesters also asked for changes to Spain’s mortgage laws so that people who take out home loans can cancel the debt by handing over their house to the bank in the event of non- payment. At present, lenders can seize not just the house but all the assets of its owner that it needs to cover an unpaid mortgage debt.

Del Rio said she felt compelled to join the protest in Soria after her experience in 2008, when she bought an interest- rate swap from Caja Rural de Soria at the same time as she took out a mortgage for a new apartment.

She said the bank, which told her the product was to protect her against rising interest rates, saddled her with rising costs when 12-month Euribor, the benchmark rate for most Spanish mortgages, plunged to 1.2 percent by March 2010 from as high as 5.5 percent in October 2008.

Court Rulings

Judges across Spain have been ruling against banks in cases brought by individuals and companies who claimed they were sold swaps without being informed of the risks. So far, 247 cases have been resolved in favor of clients against 55 for banks, according to the Association of Users Affected by Swaps and Financial Derivatives.

“I think there’s been an explosion of rage against the banks,” said del Rio, an electrical engineer. “In my case it comes from personal experience of being sold what turned out to be a complex derivative.”

Six calls seeking comment from Caja Rural in Soria, including one to the chairman’s office, were unanswered.

While many people blame banks for the “easy credit” policies that helped stir the credit boom, the fact that they are now lending less and at higher cost is also fueling anger, according to Garicano. Alfredo Saenz, chief executive officer of Banco Santander, said in April that public and private debt would have to shrink by 100 billion euros a year through 2012.

In Puerta del Sol in Madrid, Jose Luis Garcia, an unemployed electrician who has mortgage payments of 600 euros out of a family income of 1,000 euros a month, admired a scarecrow-type sculpture called “Scare-Banker” built from plastic bottles with a black crow-like bird on its shoulder and fish-like skeleton made from coat hangers.

“I think it’s great,” he said. “It perfectly captures what I think about bankers.”

--With assistance from Emma Ross-Thomas in Madrid. Editors: Christiane Lenzner, Frank Connelly

To contact the reporter on this story: Charles Penty in Madrid at cpenty@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net


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