EU Court Allows Lawsuit Against Bank Which Advised Investing In Failed Icelandic Bank

EU Court Allows Lawsuit Against Bank Which Advised Investing In Failed Icelandic Bank

Published April 30, 2021

Photo by
Darren Webb/Flickr

The European Court of Justice has ruled that a woman in Portugal is in fact allowed to sue a bank which advised her to invest in Kaupthing Bank in 2008, shortly before that bank collapsed.

The lawsuit in question is directed at Novo Banco, a bridge bank created to rescue Banco Espirito Santo. The plaintiff, identified only as VR in court documents, was initially rebuffed from suing Novo Banco by the bank and the Portuguese government, on the grounds that Novo Banco was not responsible for any financial advice given by Banco Espirito Santo. This latest ruling will allow the lawsuit to go forward.

In 2008, Banco Espirito Santo advised VR, who was 68 years old at the time, to buy some €160,000 worth of shares in Kaupthing Bank. Later that year, Kaupthing would collapse.

In 2014, Banco Espirito Santo itself was on the brink of collapse, but then the Portuguese Central Bank came up with a rescue plan that split the bank in two, with its healthy assets going to Novo Banco and its bad assets remaining at Banco Espirito Santo. The year after, VR sued Novo Banco on the grounds that she should never had been advised to buy shares in Kaupthing, claiming that she had little financial knowledge but was never advised on the risks of such an investment.

With this ECJ ruling, a precedent may be set wherein others who were advised by European banks to invest in pre-crash Icelandic banks may be able to sue for losses, even if said European banks have gone through a similar re-organisation as Banco Espirito Santo did.

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