The Provincial Court of Madrid has ruled that Barclays will have to reimburse €1.5m plus interests to a client who invested in a structured product that the bank “wrongly” sold as a medium/low risk investment when in fact it was a “highly speculative investment”. Two years after the product was sold, Barclays filed a statement with the National Securities Market Commission (CNMV) acknowledging “an error in the criteria applied to classify the product” having assigned a médium/low level of risk when according to the bank’s criteria should have been classified as a high-risk product, according to the ruling.

The court’s decision was reached on October 24, 2014, but interest in the case was revived with the approval of the sale of Barclays’ domestic banking franchise to Caixabank. A spokesperson at Barclays in Madrid said that following the approval of the sale of Barclays’ retail banking to Caixabank on 2 January, “CaixaBank will assume any liabilities in relation to Barclays’ products”.

The product (Bono Autocancelable RBS, BBVA y SAN II Cupón 37%), an autocallable structured note linked to the performance of a basket of shares from the Royal Bank of Scotland, Santander and BBVA, which was issued by Société Générale, was marketed between January and March 2008 and featured a 50% soft-protection barrier.

Barclays offered those who had invested €16.5m in the product the opportunity to switch into a new guaranteed structured note. Despite that, the UK bank but was fined €600,000 for ‘gross misconduct’. The ruling could result in additional costs for the bank as it has set precedent for other investors to claim their investments in full. “The ruling leaves no doubt in its arguments and is sustained on objective criteria that applies to each and every investor in the bond,” said the client’s lawyer, Ricardo Teigell, in a statement.

The ruling contradicts the ruling of the court of first instance of Madrid, which originally ruled in favour of the bank.

Barclays Bank’s move to offload its retail banking, wealth and investment management and corporate banking businesses in Spain to CaixaBank (formerly La Caixa) will provide the Spanish lender with more than €1.5bn of estimated assets under management (AUM) in structured products. Following authorisation from the Bank of Spain, the Spanish National Markets and Competition Commission and the CNMV, Barclays Bank, became a new subsidiary of the CaixaBank Group integrating a clientele of 550,000, mainly retail and private and personal banking customers, a network of 262 branches, around 2,400 employees and assets of €21.6bn.

The UK bank has 54 live structures in Spain which are to be serviced and managed by CaixaBank. Calls to CaixaBank to establish any liabilities in relation to Barclays’ products in Spain were not returned by press time. CaixaBank paid a price of €820m for the purchase of Barclays Bank. Barclays has been involved in Spain’s structured retail products market since 2005 and marketed more than 150 structures, including 72 structured notes and 46 structured capital-protected funds, 20 structured deposits, as well as life insurance products and structured pension plans, according to SRP data.

According to latest ruling, “[Barclays] classified the product as a capital guaranteed or fixed-income product” while “the information provided did not correspond to the level of risk embedded.” The ruling also stated that the lack of accurate information was obvious, as the investor stated during the suitability test that the “assumable loss” would be between 16% and 30%. At the time of the law suit, the product had lost almost 97% of its initial value.

The ruling can be contested via an appeal to the high court.

Click here to read the court ruling.

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