Are you affected by the so-called “preferred shares”?
If your answer is NO, there are possibilities to recover your money. The media has been talking a lot recently about the so-called preferred shares. But, do we really know what they are?
What are preferred shares?
Preferred shares are a “hybrid” financial product, meaning they are somewhere between fixed and variable income. They are not payable debt because they lack a maturity date, but they also cannot be considered shares since they do not grant voting rights. Furthermore, they are HIGH RISK, as stated by the European directive on financial markets and instruments (MiFID).
A key characteristic of preferred shares is that they do not trade on the stock exchange. To acquire or sell them, one must enter an organized market, where liquidity is not guaranteed.
Main characteristics of preferred shares:
- No political rights: They do not provide capital participation or voting rights to the investor.
- Indefinite or perpetual term: In some cases, the contract may last perpetually, such as “until the year 3000.” Their profitability is generally not guaranteed.
- Conditional profitability: Profitability depends on the issuing entity’s profits, so in times of crisis, it may be 0.
- Not guaranteed by the Deposit Guarantee Fund: In the event of the entity’s bankruptcy, they are not covered by this fund.
- Low priority in bankruptcy: In the case of the entity’s insolvency, preferred shares have a very low priority, only ahead of common shares.
Why can you claim the return of the money invested in this financial product?
The main reasons why you can claim the full return of the invested capital are:
- Investor profile: Preferred shares are classified as complex products under the MiFID Directive. Therefore, the entity must ensure that the investor has the proper profile before offering them this product.