Spanish banks sit on the bench again in Europe

Spanish banks sit on the bench again in Europe

The conflict over mortgages linked to the IRPH, whose view is held on Monday, may be a blow greater than that of the floor clauses

  The meeting is Monday at 2:00 pm before the Grand Chamber of the Court of Justice of the European Union (CJEU), at its headquarters in Luxembourg. Fifteen judges headed by the president of the highest community body will analyze, once again, a Spanish case related to bank abuse in mortgages. This is the use of the IRPH index, which was applied by several financial institutions for many years, especially in the pre-crisis period, and which historically remains between one and three points above the Euribor, with an extra cost in the monthly fee that is around 200-300 euros.

The IRPH is not as widespread as the ground clauses (the affected ones are around half a million), but a failure against the bank could have even more economic impact because there is a risk that, if it is canceled, the entities have to return all interest and leave the mortgage free. Goldman Sachs comes to estimate a blow of 44,000 million . The Supreme Court ruled in favor of the bank but a Barcelona judge raised the dispute to the CJEU, which could amend the plan to the Spanish Court, as happened with the ground clauses. The European Commission has positioned itself with those affected, who will be represented in Luxembourg by the Guipuzcoan lawyer José María Erauskin.


1.What is resolved in the Court of Justice of the EU?

The IRPH is an official index of the Bank of Spain and, therefore, legal. What is in question is whether it was incorporated transparently to the mortgage contract. Those affected believe that the banks should have informed the client of the peculiarities of this indicator, which has always evolved above the Euribor, although during the crisis the gap soared. The reason is that the IRPH is the average of the interest TAE applied, including commissions and spreads, and the entities increased these elements to compensate the collapse of the Euribor. In January, the IRPH Entities was at 2% and the Euribor at -0.12%.

The specific case that has reached the CJEU is a mortgage granted by Bankia in 2001 that was referenced to the IRPH Cajas (when this index disappeared in 2013 it was replaced by the IRPH Entities). The Barcelona judge who has accepted to raise the matter to the Court of Luxembourg not only asks if the bank should have informed about the functioning of this index, in contrast to alternatives such as the Euribor. It also raises what would be the 'punishment' to the bank if declared void for lack of transparency: return all interest and leave the mortgage free or take as reference the Euribor and pay the difference retroactively.




2.The Supreme Court, in favor of banking

The Supreme Court ruled in favor of the bank in November 2017. The case that reached the High Court was a mortgage of Kutxabank, in which both the Court of First Instance and the Audiencia of Álava had agreed with the plaintiff. But the Supreme did not see it that way. He estimated that since the IRPH is an official index, the bank does not have to give many more explanations . "Any reasonably attentive and insightful consumer can know that different indices are used and compared," he concluded. But it was not a unanimous decision; He counted on the individual votes against two magistrates.


3.The European Commission endorses the plaintiffs

The bank breathed a sigh of relief knowing the sentence of the Supreme Court, but the truce did not last long. Barcelona judge Francisco González de Audicana brought the case to the CJEU in February 2018 with a preliminary ruling. There is still a lot of war going on, but things are looking bad for the bank. The European Commission has issued its opinion and is favorable to those affected . It considers that "the fact that the bank did not inform the consumer about the configuration of the benchmark, nor about its evolution in the past, could constitute a deceptive omission".

He considers that the national judge must decide in each case, but recommends a solution: if he believes that after canceling the IRPH the contract does not survive, that the parties agree on a substitute such as the Euribor and that the entity returns the difference. In the ground clauses, Brussels also recommended the CJEU to rectify the Supreme Court, as it happened later, so it is a report to be taken into account. One of its authors, Napoleón Ruiz, agrees in both cases.


4.The Kingdom of Spain, concerned about the financial sector
The position of the Kingdom of Spain was established during the Government of Mariano Rajoy. According to the lawyer José María Erauskin, in the text the CJEU is asked that, in case of annulling the IRPH due to lack of transparency, the bank will not be condemned to return the interest charged since it would jeopardize the stability of the system . «Once again, it uses non-legal arguments to protect banks», he criticizes.




5.The impact can reach even 44,000 million

Several investment banks have analyzed the possible impact for the sector of a ruling against, but their conclusions are mixed. The most alarmist is Goldman Sachs, which estimates a negative impact of 44,000 million euros for the sector in the event that entities have to return all interest and leave free mortgages. But the figure that generates more consensus is that of 10,000 million euros . According to Mirabaud, it is the result of multiplying the half million mortgages referenced to the IRPH that remain in Spain for the 21,000 euros of difference that IRPH gives on average against the Euribor. Then estimates vary because not everyone would claim.

There is also a coincidence that the most affected entities would be Caixabank and Kutxabank . In both cases, its credit portfolio referenced to the IRPH exceeds 3% of the total. The Basque bank has 1,400 million euros spread over 15,000 mortgages, according to Mirabaud. It has greatly reduced the number because a large part of the inheritances from the Guipuzcoan Kutxa were referenced to the IRPH Cajas and, when they disappeared, they were replaced by the Euribor + 1%, as established in the contracts. Mirabaud estimates a potential damage of 470 million.


6.The judgment of the CJEU will take several months
This Monday the oral hearing is celebrated and then we will have to sit and wait. The next milestone will be the opinion of the EU's general counsel. The Polish Maciej Szpunar has been designated, the same one that takes another Spanish case, the one related to the clause of anticipated expiration. His position there is contrary to the bench.