CAIXABANK, S.A. 
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The measure will hit small investors drawn in by aggressive marketing just last year after Bankia was formed from a merger of provincial savings banks. But it is described by officials as vital if the company, which was nationalized in May, is to return to profit in order to be sold on again.
Bankia will receive 18 billion euros of European Union money by Friday and launch a capital increase in the first half of January when current shareholders will lose practically their entire investment, a source close to the Bank of Spain said.
"Are we looking into leaving shareholders with something? Yes. How much? That's too soon to say. Will it be very little? For sure," the central bank source said on condition of anonymity.
"But that will be purely symbolic. I can assure you they will lose up to the shirt on their back."
Under the EU plan to prop up Spain's banking sector, devastated by a burst real estate bubble, shareholders must be the first in line to accept losses. That was the case in Ireland, another victim of the global credit crisis, where shareholders in Anglo Irish Bank were left with nothing.
Bankia had negative equity - or an excess of debt over assets - of 4.2 billion euros, Spain's bank rescue fund, known as FROB, said on Wednesday. That measure will be used to help determine shareholder losses. Bankia's parent company BFA had negative equity of 10.4 billion euros.
How much shareholders will lose will be unveiled when the capital increase takes place in January following discussions with EU authorities, the source said.
"A TOTAL COCK-UP"
Hundreds of thousands of Spaniards, some of them retirees with little awareness of financial affairs, ploughed savings into Bankia shares when the bank was listed in July 2011. The stock has lost more than 80 percent of its value since then.
Small savers also bought billions of euros of other Bankia instruments, such as preference shares or subordinated debt, on which they will also suffer steep losses.
"It seems to be to have been managed extraordinarily badly. It is a total cock-up," said Enrique Marquez, 66, a retired technician who invested 7,000 euros in ordinary shares and more than 70,000 euros in preference shares with Bankia.
"I've been duped on the preference shares and I've been duped on the ordinary shares. It's been an abuse of trust," added Marquez, who said he had been told by his bank manager the stock could be very profitable in the medium term.
Many of Bankia's more than 20,000 employees also invested in the shares in the 2011 initial public offering and are set to lose their money even as thousands face job cuts enforced as a condition of receiving European aid.
Speaking of his fellow staff at Bankia, one employee at a branch in northern Spain said: "I don't know anyone who didn't buy the shares. I did and my family heavily invested in them too." He spoke anonymously and said he now feared for his job.
About 6,000 workers will be axed in Bankia's restructuring while remaining employees are being asked to take a 40- to 50-percent pay cut, trade unions said.
Shares in Bankia fell a further 16 percent to 0.58 euros on Thursday after the FROB disclosure of its negative equity. Bankia will be taken out of Spain's blue-chip index, the Ibex 35 <.IBEX>, as of January 2, the stock exchange said on Thursday.
SLIMMED DOWN, SOLD OFF
Bankia must reduce its balance sheet by 60 percent over the next five years as a condition of receiving aid.
Bankers say the lender could be put up for sale after it is slimmed down and stripped of its toxic property assets, which will be siphoned off into a special vehicle, or 'bad bank'.
However, the lender, which accounts for around 10 percent of Spain's banking market, is probably too big to be swallowed by a larger rival, as other state-rescued lenders have been: "The large Spanish banks would struggle to take on something of that size," one Madrid-based investment banker said.
Bankia is unlikely to be sold until around 2017, bankers said. Around 10 percent of a stabilized market, flush with rescue cash and stripped of toxic real estate assets, may be an attractive investment proposition for a foreign bank, they said.
Another possibility for the government to extricate itself from Bankia would be a public share offering, bankers said, although they admitted Spain would have to wait so any sales operation wouldn't come too soon after the ill-fated 2011 IPO.
Separately, the FROB also announced it would take over 99.9 percent of Banco de Valencia before it is sold to CaixaBank (>> CaixaBank SA), while shareholders in other nationalized lenders NCG Banco and Catalunya Banc will be fully wiped out.
In the case of Anglo Irish Bank (AIB), shareholders whose equity was once worth 13 billion euros were left with nothing following the bank's 4-billion-euro recapitalization and immediate nationalization in January 2009.
AIB ultimately needed another 25.3 billion euros of state money, which was funded by a "promissory note", or government IOU, that Ireland is now trying to restructure.
Spain's four nationalized lenders will receive a total of 37 billion euros of EU funds. It will also tap another 4.4 billion euros to set up the 'bad bank' and recapitalize smaller banks. ($1 = 0.7563 euros)
(Additional reporting by Laura Noonan in Dublin and Sarah White in London; Editing by Giles Elgood and Alastair Macdonald)
By Julien Toyer and Sonya Dowsett
