Facing needs to bolster capital in order to meet European Banking Authority (EBA) requirements, Spanish banks are looking for creative ways to avoid getting battered by the markets and elude what happened with Unicredit.
So lenders are aiming to raise capital through contingent convertibles (called CoCos in Spanish) that allow banks to elevate solvency levels without having to issue new stock shares.
This is a good solution, but given that margins are thin right now, interest payments could be costly. Especially when the sector is still dealing with uncertainty about what restructuring model the Spanish government will come up with.
Errors committed in the past should be avoided. The Spanish government must act quickly and clearly as they develop a clear and thorough model and forget about the idea of merging healthy banks with zombie banks.