Merging seven struggling banks in Spain appears to have created a big, struggling bank instead of the healthy institution authorities were hoping for. The Spanish government is now grabbing a controlling 45% stake in Bankia, the nation's fourth-largest lender and the one with the most exposure to the country's shell-shocked property market. The government, which insists Spain's banking system is secure, has acknowledged for the first time that public funds may be needed to rescue Bankia and other institutions buried under a mountain of bad debts.
When Bankia was created in 2010, it was hailed as a poster child for the Spanish government's policy of merging banks instead of doling out aid like other European governments, the Wall Street Journal notes. Now, the part-nationalization will be "a controversial operation, because it will lead to huge losses for many thousands of Spanish investors, who bought shares in Bankia and provided it with loan capital when it was listed on the stock market last year," says the BBC's business editor.