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Bankia Depositors Buying Bonds Leave Spain on Bailout Hook

Spain’s hands are tied with the rescue of Bankia because alternatives to injecting cash or government debt, such as forcing bond investors to bear the cost, risk hurting ordinary depositors.

Bankia is among Spanish lenders that sold 22.4 billion euros ($28.2 billion) of preferred stock to individual investors through retail branches, according to data compiled by CNMV, the financial markets supervisor. In a so-called bail in, these investors would be wiped out before holders of more senior bonds, which tend to be banks and institutions.