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From the FT's Lex blog

Bankia has the ring of a computer-generated name that was supposed to give clients and investors a warm feeling. The seven Spanish cajas that merged under its banner and listed last July needed a seductive image: they were riddled with toxic property exposure. Yet, less than a year later, Bankia's name - and its Pisa-esque leaning office tower on Madrid's main thoroughfare - symbolize all that is wrong with Spain's gradualist approach to fixing its banks. The government says it will inject a further €19-billion into Bankia, making a total outlay of €23.5-billion, and taking a 90 per cent stake. The injection should enable the bank to meet new Madrid rules on bad loan provisions.

Today, the government could have a new band of indignados on its hands. Its tardy pro-cyclical bank reform and near full nationalisation of Bankia have all but wiped out the loyal retail depositors who were hoodwinked into investing in the bank. With Rodrigo Rato, former IMF managing director and Bankia chief, as the listing's loudest cheerleader, €3.3bn was raised from Spanish savers and institutions. The previous government and the Bank of Spain were complicit. Bankia's shares have lost almost 60 per cent since then. Mr. Rato has gone and so has the board. An inquiry should be held into their role, but it can wait.

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Top priority for Jose Ignacio Goirigolzarri, the new boss, is to rebuild trust in Bankia, including selling its stakes in Iberdrola and International Airlines Group, worth about €1.5-billion. Mariano Rajoy, Spain's largely silent prime minister, meanwhile, must speak out to restore confidence in banks - and he must do so now.

Spain's 10-year borrowing costs, which had recently stabilized below 6 per cent, leapt to 6.31 per cent last week, limiting its funding flexibility. With rating downgrades on banks coming in faster than runners in Pamplona's bull run, and the Catalan government begging for cash, it is no surprise that Madrid could use unorthodox funding structures for Bankia to sidestep hostile markets.

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