Shareholder haircuts: ECJ ruling backs Slovenian investors

Kristjan Verbic of VZMD

Kristjan Verbic of VZMD

The Slovenian Shareholders Association (VZMD)  says that a European Court of Justice (ECJ) ruling backs their claim for a settlement from the Slovenian government after it restructured its banking sector, including nationalising six banks, during 2013 and 2014.

The European Commission gave the government permission to provide state aid for this restructuring – which followed the 2007 global banking crisis. However, a group of investors – the  subordinated bondholders – did not receive compensation following the nationalisation of the banks; this was justified, according to the Slovenian government, because of the EU’s state aid rules. The decision was challenged by the VZMD and Slovenia’s constitutional court referred the case to the ECJ to obtain a ruling on how the Slovenian government should have interpreted the provisions of the Banking Communication from the Commission.

The ECJ  ruled that “expropriations of and encroachment upon shares and bonds of Slovenian banks were neither necessary nor unavoidable for the restructuring of the banking system and allocation of state aid”. The VZMD said that this had always been its argument and followed the reasoned opinion of Advocate-General of the Court, which was released in February this year.

The VZMD said that the ruling has meant that the issue needs to be resolved within the Slovenian judicial system. It is pushing for the adoption of a law regulating the status of expropriated investors in Slovenian banks. The VZMD believes that its proposed law would provide help for over 100,000 investors who were financially damaged by the nationalisation of the Slovenian banks.

The VZMD said if its proposals were adopted they would not hit Slovenian government’s finances or taxpayers as the compensation for investors should be regulated by issuing bonds through the Slovenian Bank Assets Management Company (BAMC). The VZMD said, “Such regulation of the situation involves an incremental approach and decreases the liquidity pressure, while simultaneously linking the payments to the actual (successful) continuous business operations of the banks and BAMC.”

Speaking at a recent press conference the VZMD President, Kristjan Verbič, said that the VZMD’s bill is based on the initiative of the European Federation of Investors and Financial Services Users too (Better Finance), which sent an open letter in February to the European Commission and the Slovenian government complaining about the treatment of the subordinated bondholders and suggesting that they had been missold their investments.

In the letter, Jean Berthon chairman of Better Finance said, “In our view, the fact that the retail investors were not adequately informed about the risks involved in these bonds due to their subordination and the forthcoming enactment of ex post facto bail-in legislation is thus clear.” Better Finance also pointed out that settlements had been reached in similar cases in other EU countries.

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