Yesterday, 22 October 2025, I had the honour and pleasure of participating as a speaker at the IV Italian – Norwegian Conference regarding “The impact of EU regulation on models of banking and finance”, held within the Master in “Regolazione delle attività e dei mercati finanziari”. Specifically, I intervined in the Session II about “News on the EU regulation for banking and finance with a presentation about “Bank resolution and investor protection: The Ruling of the Court of Justice of the European Union of September 11, 2025” in which I briefly analyse the Ruling of the First Chamber of the Court of Justice of the European Union (CJEU) handed down on the 11 September 2025 in case C-687/23, which states that Banco Popular investors who had filed claims prior to its Resolution on the 7 June 2017 may take action against Banco Santander.
A) The impact of the ruling on the European and Spanish banking market
The Ruling of the First Chamber of the CJEU affects the scope of Banco Santander’s subrogation in the numerous lawsuits pending judicial resolution filed by investors who saw their investments disappear. This subrogation is in the Banco Santander’s role as universal successor entity by virtue of the merger by absorption of Banco Popular.
The lawsuits are result of the financial transactions carried out in execution of the Banco Popular Resolution mechanism by Agreement of the Single Resolution Board (SRB), on the 7 June 2017 which was approved by the European Commission and executed by the FROB. This Arrangement involved reducing the capital stock of the resolved bank to zero, redeeming its outstanding shares, and converting Tier 2 capital instruments into new shares, which were subsequently transferred to Banco Santander.
The Ruling concerns a request for a preliminary ruling submitted by the First Civil Chamber of the Spanish Supreme Court by order of November 2, 2023, in the context of a dispute between an individual investor and Banco Santander, S.A., as the successor entity to Banco Popular Español, where the investor brought actions for annulment and liability based on the defective and erroneous information allegedly provided to it in the prospectus to be published, in particular in the case of a public offering of securities in connection with the acquisition of capital instruments subsequently converted into shares of Banco Popular.
The Ruling interprets several articles of two European Union financial directives: Directive 2014/59/EU of May 15, 2014, on the recovery and resolution of credit institutions and investment firms and Directive 2004/39/EC on markets in financial instruments.
This Ruling must be viewed in the context of decisions by the Court of Justice of the European Union on the Banco Popular Resolution: Ruling of May 5, 2022 (Case C-410/20) (Banco Popular I resolution) and Ruling of September 5, 2024 (Cases C-775/22, C-779/22, and C-794/22) (Banco Popular II resolution).
The final result is recognizing Banco Popular investors who had filed claims prior to its resolution on June 7, 2017, as having standing to bring proceedings against Banco Santander.
B) Ten commandments for interpreting Directive 2014/59/EU on bank resolution established by the Ruling of the CJEU handed down on september 11, 2025, in case (c-687/23)
1. The Ruling of September 11, 2025, takes place in the extreme legal conflict arising from the Resolution on June 7, 2017, of the Spanish credit institution Banco Popular by Agreement of the Single Resolution Board (SRB), which was approved by the European Commission.
2. Given that the Banco Popular Resolution involved the reduction the capital stock of the resolved bank to zero, redeeming its outstanding shares, and converting Tier 2 capital instruments into new shares that were subsequently transferred to Banco Santander, many thousands of retail investors have been affected, watching their investments evaporate.
3. Given that the Banco Popular Resolution also involved the sale of its share capital to Banco Santander for €1 and its subsequent absorption by the latter, the lawsuits have been brought against Banco Santander as the universal successor entity by virtue of the merger by absorption of Banco Popular.
4. The Ruling of September 11, 2025, has an impact on this last aspect, allowing for a kind of “differential diagnosis” between actions taken before and after the date of the Banco Popular Resolution on June 7, 2017.
5. Actions prior to the Banco Popular Resolution (June 7, 2017) may be opposed to Banco Santander, which therefore enjoys passive legitimacy “ad causam”.
6. In order to reach the above conclusion, the Court of Justice of the European Union (CJEU) develops a line of reasoning in which we can identify two types of reasons: on the one hand, economic and financial reasons such as:
a) The admissibility of uncertainties in the valuation of Banco Popular. The CJEU considers that this degree of uncertainty exists in any inventory preparation activity and it can be said that it forms part of the general risk that must be accepted by the entity acquiring the credit institution subject to resolution within the framework of resolution under the Bank Resolution Directive.
b) The compatibility with the financial stability of the Union. The CJEU points out that the interpretation allowing shareholders and creditors to continue to bring actions for annulment or liability already pending at the time of the resolution does not compromise the financial stability of the Union.
7. Furthermore, the CJEU bases its interpretation on legal grounds such as:
a) The recognition of “accrued” rights in benefit of investors without the need for a final judgment. The CJEU considers that rights arising from actions for annulment and liability brought before the decision can be considered “expired” or “accrued” without the need for a final judgment prior to the decision.
b) Their right to effective judicial protection. Finally, the CJEU adds that denying that these rights are “vested” or “accrued” would mean that the termination decision would render the pending legal proceedings moot, so that they would have to be terminated. This would constitute a serious interference with the right to effective judicial protection, enshrined in the Charter of Fundamental Rights of the European Union.
8. Actions taken after the Banco Popular Resolution (June 7, 2017) cannot be opposed to Banco Santander, which therefore lacks passive legitimacy “ad causam.”
9. From the very nature of the preliminary ruling requested from the CJEU by the First Civil Chamber of the Spanish Supreme Court, it can be inferred that the Ruling of September 11, 2025 will have a double impact on financial markets because it will affect not only the banking market due to the Banco Popular Resolution, but also the stock market, taking into account the transparency obligations of issuers towards investors via prospectuses.
10. Given that it was the First Civil Chamber of the Spanish Supreme Court that referred the preliminary ruling, it is clear from the Ruling of September 11, 2025, that in the near future, the Sanish Supreme Court will resolve the numerous “pending” appeals by applying the doctrine established by CJEU in this Ruling, which establishes that the rights derived from the actions for annulment and liability brought before the resolution of Banco Popular are enforceable against Banco Santander.