Spanish lender Bankia will wipe out 350,000 shareholders, many of them small savers with little knowledge of financial markets, after it emerged it had a negative value of 4.2 billion euros ($5.6 billion). The measure is seen as vital if the nationalised bank is to be refloated.

A source close to the Bank of Spain said Bankia would receive 18 billion euros of European money by today and launch a capital increase in the first half of January when current shareholders will lose practically their entire investment.

Under the European Union plan to prop up Spain's banking sector, shareholders must be the first in the queue to suffer losses. "Are we looking into leaving shareholders with something? Yes. How much?" said the source. "I can assure you they will lose up to the shirt on their back."

The source also said the issue was under discussion with the EU authorities and that the final figure would be known when the capital increase takes place in January.

Hundreds of thousands of Spaniards, some retired people, invested their savings into Bankia shares when the bank was listed in July 2011. Shares have plummeted more than 80 per cent since then.

The state bank rescue fund FROB also announced it would take over 99.9 per cent of Banco de Valencia before it is sold to CaixaBank while shareholders in other nationalised lenders NCG Banco and Catalunya Banc will be fully wiped out. Spain's four nationalised lenders will receive in total 37 billion euros of EU funds.-Reuters