The European Union recently announced that nationalized Spanish banks that need such funds from Brussels should convert preferred stock into more liquid common stock with a discount of around 40 percent, which would mean huge losses for thousands of savers.
Most Spaniards have traditionally stayed away from investing in stocks or mutual funds to build savings for the future. Instead, they have invested in real estate and relied on the advice of managers at "cajas," the equivalent of local savings and loans banks, which have virtually disappeared in the U.S.
Many Spaniards like Valls and Porcar have joined associations that are suing the banks. One of them is called Apacbank, which represents hundreds of Bankia clients who have had their money frozen. Apacbank says many investors signed legal documents thinking that there was no risk and believing the word of their local bank.
"The majority of them have subscribed to 'preferential shares' not thinking in a million years that it was a financial product with this risk attached," Apacbank spokesman Salvador Sastre said. "They are victims, and the banks knew that they were committing a massive scam."Preferential shares are legal in Spain and other countries in the world. But Spain's banking system has been especially decimated -- causing a complete collapse of the market in these shares. Most people affected in Spain are over 60 and are small investors concentrated in towns throughout Spain where there are few banks and practically all belong to savings banks. It's been a big blow to this formerly prosperous town just inland from the Mediterranean. La Vall D'Uixo was once famous in Spain for its Calzados Segarra factory, which exclusively produced boots and other footwear for the country's armed forces starting in the early 20th century. But the factory shut down in the early 1980s, leaving the town to subsist on small industry like agriculture -- primarily orange plantations â¿¿ and ceramics.