Bankia SA shares fell the most in a month after Spain said the lender had a negative value of €4.15 billion, in an exercise to determine how much of the rescued lender remains in shareholders’ hands.

Bankia dropped as much as 15.5 per cent, the most since November 30th, to 58 cents, taking the loss since the shares were first sold to the public in July 2011 to 85 per cent.

Bankia group, including its parent, Banco Financiero y de Ahorros, is set to receive €18 billion of European funds, making it the largest recipient of the country’s bank bailout.

The valuation published yesterday by Spain’s bank-rescue fund will help determine how much of the lender current shareholders will continue to own after it is recapitalised.

In a first phase of the recapitalisation, Bankia will issue €10.7 billion in contingent convertible bonds, which its parent company will buy. They will convert into ordinary shares early next year as part of a capital reduction.

That process will make sure that the “shareholders are the first to bear losses or restructuring costs”, Spain’s FROB bank-rescue fund said late yesterday in a statement.

Bankia was formed in 2010 from the merger of seven Spanish savings banks and traded on the stock market last year as part of the previous government’s efforts to clean up an industry reeling from real estate losses. The initial public offering, carried out to meet a government deadline, hinged on support from the banks’ retail clients.

A source close to the Bank of Spain said Bankia would receive €18 billion 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 EU plan to prop up Spain’s banking sector, shareholders must be the first in the queue to suffer losses. This has already been the case in Ireland with Anglo Irish Bank. – (Bloomberg/ Reuters)