Many duped savers at Spanish lender Bankia are shunning a state-supervised compensation scheme in favour of expensive lawsuits, prolonging a mis-selling scandal and complicating efforts to restore faith in the banking system.
The disputes over mis-selling at Bankia and other nationalised banks have created a major headache for the government as it tries to take the next step in their rescue, imposing large losses on holders of junior debt.
It set up the arbitration process to try to end daily protests by some of those debt holders - elderly savers who say they were mis-sold complex debt products as safe, high-interest deposit accounts.
But many people caught up in Bankia's rescue see it as a trick to stop them getting their money back.
"We are not going to enter the arbitration process because we think it's a swindle," said 66-year-old Carlos Peral at a recent protest outside a Bankia branch in a Madrid. All the demonstrators Reuters spoke to were seeking legal action.
Peral and his wife, both blind, have 80,000 euros ($103,300)of life savings tied up in Bankia preference shares, a form of hybrid debt due to be converted under the rescue by May 24 into ordinary shares worth around 38 percent less
The terms of its EU-funded 24.5 billion euro bailout require Bankia and its parent group BFA to raise 6.5 billion euros this way - by converting debt into equity at a large discount.
Whether customers win misselling claims through the courts or through the state-sponsored scheme, the bank will have to find the money to compensate them, a factor not taken into account when its recapitalisation was calculated.
"The arbitration process is not something positive for Bankia. The bank will have to settle those claims in cash," said a banker involved in Bankia's recapitalisation.
Court cases drag out the issue for even longer. "You don't know when the legal cases will end, they could last years."
Bankia declined to say how many court cases had been lodged against it related to preference shares, but said it was much fewer than the number who had requested arbitration.
A bank spokesman said the compensation claims would be easily covered by parent group BFA and would not affect Bankia's capital. Preference share holders will have the market value of their shares deducted from any compensation package.
The mis-selling scandal is salt in the wound for Spaniards forced to put up with years of tax hikes and spending cuts to deal with the country's financial crisis.
A 2013 survey carried out by public relations agency Edelman found Spaniards the most unhappy world-wide with their banks, outstripping Ireland, Great Britain and Italy, all of which have suffered banking scandals in recent years.
Peral, one of 300,000 hybrid debt holders whose new shares are due to start trading on May 28, is deeply mistrustful: "The measures have been drawn up to trick people into making a claim which will then be rejected and they'll keep the money."
Bankia customers have until June 30 to file claims of mis-selling. Auditor KPMG determines the maximum amount that could be awarded to the claimant, who then signs an agreement which waives future legal action. A state arbitrator then determines the actual level of payout.
The legal route is more expensive as it includes lawyers' fees, but many preference share holders believe they have a better chance of getting more money back through the courts.
No arbitration case has yet paid out, but Bankia says successful claims should receive their money back, adjusted for interest. Lawyers were cashing in on the confusion surrounding the arbitration process, said a source close to the process. "For the lawyers, the fact that there is a quick and free compensation process is very bad news," he said. "There is huge business for them in taking these cases to court."
The bank said that 44,316 people had so far applied for the arbitration process and it expected around 150,000 customers to turn to it in total.
The banker involved in the recapitalisation said many may turn to arbitration after May 28 when the new shares start trading if their price dips because savers cash them in.
To determine eligibility for compensation, factors such as whether bank staff explained the risks of the product and the customer's investment history are taken into account.
On the street, confusion over the criteria reigned.
"To win the arbitration you have to have Alzheimer's, or be illiterate or on an extremely low income," said Raul Gomez, 60, who has 145,000 euros locked in preference shares, including a redundancy package from his former job as a supermarket manager.
"Going to court is the only way for me to get something back," he adds. He says that out of 52 court cases he knows of, 51 have been successful.
Legal firm V Abogados recently put on back-to-back presentations about the arbitration process at a Madrid hotel to packed audiences, where people clamoured for advice.
"We've had around 2,000 people coming to our offices connected with this issue," says V Abogados lawyer Santiago Viciano. "Our switchboard has been blocked with people ringing in from all over Spain."
Most preference share holders have won their claims so far, he said, adding that he expected an avalanche of rulings through the courts after the summer.
The protesters just want their money. "We're not interested in the swap or the compensation," said Mariano Hernanez, a retired carpenter with 464,000 euros in preference shares. "I'm 81 now, and I will keep fighting until I get all my money back.
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