‘It’s a terrible blow for our retirement.’
Their plight will send a chill down the spines of hundreds of thousands of expats with cash sitting in foreign bank accounts – particularly those in Portugal and other countries with fragile economies, such as Greece.
Many of these expats will have paid in substantial sums to bolster their pension incomes, or from the sale of property and investments in the UK. David and Margaret visited the manager at their local branch of BES in January 2014 when an earlier savings rate had come to an end and they wanted another fixed deal.
The couple, who moved to Praia da Luz in southern Portugal ten years ago, and own a house in the resort, relied on the cash to fund their daily lives.
‘We didn’t want any risk, just another ordinary savings account,’ says David, 70, who along with his 72-year-old wife Margaret, has no other major funds.
Both David and Margaret draw the UK state pension. In addition to that, David has a small private pension from a career as a hire-purchase manager.
The couple knew that savings of up to €100,000 (£72,000) were protected by the European compensation scheme should the bank go bust. And as BES was Portugal’s biggest bank, they were reassured that it was in good health.
They thought the manager had put their money in a standard savings account. Instead, it was invested in bonds issued by the bank’s parent group, Grupo Espirito Santo.
In August, Grupo Espirito Santo ran into financial trouble, helping to trigger the collapse of BES.
The Central Bank of Portugal stepped in with a £3.5 billion bailout. Just as with Britain’s Northern Rock, the bank was split in two: a ‘bad bank’ stuffed with the rotten assets, and a ‘good bank’ called Novo Banco, which took over ordinary BES customers.
All savers with cash in regular deposit savings accounts were covered for compensation through the European-wide scheme.
Because of this, initially, the Haddons were unfazed. The bank manager reassured them that their cash was safe.
But when they tried to withdraw it three months later, they were told it had been invested in bonds linked to Grupo Espirito Santo. With GES’s finances in disarray, they finally learned that their money was gone.
David says: ‘We were shell-shocked. We thought we were putting our cash into deposit accounts.
‘We’ve been retired for years. When we went into the bank, we said we wanted an ordinary savings account and no risk to our money. We cannot believe it’s gone.’
Misery: In August, Grupo Espirito Santo ran into financial trouble, helping to trigger the collapse ofBanco Espirito Santo
It is not known exactly how many British savers have been hit by the collapse of BES, which had 700 branches. Campaigners in Portugal say it is hundreds, with a dozen cases in Praia da Luz alone. However, a spokesman for the bank claims it is barely in double figures.
John Tanner, 82, and his wife Alethea, 70, fear they have lost £217,000 because they, too, had their money in bonds rather than in a standard savings account.
The couple moved to Portugal in 1986 after successful careers in textiles and chemical industries.
Early last year, they decided it would make more financial sense to rent rather than own a home, so they sold their property – also in Praia da Luz – and planned to pay rent from the interest earned on the £217,000 raised from the house sale.
They both trusted the BES bank manager implicitly.
Now, though, the couple are back in the UK, living near Chepstow in Wales. Alethea says: ‘It’s been horrendous. The bank told us in no uncertain terms that our money was going to be as safe as houses, and that there was no risk.
‘This is the last thing you expect to have to deal with at this age.’
Two protest groups – one called Deca Proteste and the other Lesados Novo Banco – hope to force the new bank which took over ordinary BES customers, Novo Banco, to pay out compensation. In many towns across Portugal, former bank branches have been targeted by loud protests.
In February, the Portuguese body that looks after the compensation scheme reiterated that all those mis-sold investors should be given their money back.
However, a spokesman for Novo Banco says bond repayments are ‘the exclusive responsibility’ of the original issuer – which means Grupo Espirito Santo. As it has no money, there is little hope of compensation.
A parliamentary inquiry into the fiasco in Portugal recently called for tighter regulation.
HOW YOUR SAVINGS SHOULD BE KEPT SAFE
In Britain, the Financial Services Compensation Scheme was set up in 2001 to prevent customers losing out in the event of a bank or building society going bust.
It is an independent fund set up by UK financial bodies and regulated by the City watchdog. It will protect up to £85,000 of your savings in a regulated UK financial firm (£170,000 in joint accounts).
It includes overseas-owned banks registered here including Yorkshire Bank (Australian), ICICI (Indian) and Spanish giant Santander.
The protection of £85,000 is per financial institution, not per account. So, if you had three accounts with one bank, each with £30,000, £5,000 would not be covered.
Critically, the definition of institution can vary, too. It depends on a bank’s individual licence, and the complexity of our High Street banking giants makes it hard to work out exactly what protection you have.
For example, sister banks Halifax and Bank of Scotland (both part of Lloyds Banking Group) are covered up to £85,000 combined. So, if you had £50,000 in two accounts, one with each bank, you’d be risking the security of £15,000. Yet RBS and NatWest are also sister banks (part of RBS Group), but their £85,000 limits are separate. So, in this case, every penny of your £100,000 would be safe.
In the event of a bank or building society collapse, the scheme will typically make a payment within seven days. Since 2001, it has helped more than 4.5 million people and paid out more than £26 billion.
But bank outside Britain and you rely on the host country’s version of the FSCS. Since 2010, all European countries are required to give compensation up to €100,000 (£72,000).
Overseas property experts say the case of these expats emphasises the need to double-check every line of a financial arrangement written in a foreign language, and not simply to rely on the English – no matter how good – of staff at the bank.
Simon Conn, an overseas property adviser, says: ‘I strongly advise people to use the services of a translator or an independent lawyer who understands the law in their home country.
‘They can check any legal documents thoroughly.
‘Too many people are prepared to either sign a foreign contract they do not understand or, even worse, sign a version in their mother tongue without checking it was a correct translation of the original.’
We asked the Bank of Portugal and Novo Banco to comment on the prospect of compensation for customers affected by the collapse. A spokesman for each referred us to the same prepared statement from the Bank of Portugal.
It says: ‘Repayment of debt securities not issued by BES – even where placed by that entity – is the exclusive responsibility of the respective issuers, as they are the debtors of the claims relating to those securities.’
Neither would comment on individual cases.