bank of ireland was yesterday described as "the first of our financial institutions to emerge from the banking crisis" by the Irish Finance Minister, Brian Lenihan, as the company unveiled plans to raise €3.4bn (£2.9bn), largely from institutional investors.
The capital raising is being seen as a test of the willingness of institutions to invest in Irish assets in the wake of the recession and fears in some quarters of a Greek-style debt crisis.
Ireland's biggest bank was told last month by the country's financial regulator that it needed to raise €2.7bn to meet new minimum capital requirements and compensate for losses on discounted loans that were sold to the National Asset Management Agency (Nama), Ireland's "bad bank" which has been charged with overseeing the run-off of billions of euros worth of distressed and bad loans. Mr Lenihan also said he had "every confidence" that Allied Irish Banks would also be able to bolster its balance sheet.
Bank of Ireland's plans will involve only a modest increase in the government's stake in the company, which will stand at 36 per cent after the capital raising measures are complete, against 34 per cent last night.
Reaction to the capital raising plans from the financial community was largely positive, even though it is expected to be some time before Bank of Ireland starts to show signs of sustained profits.
Analysts at UBS said: "Delivery of normalised earnings in 2013 would provide the firepower to retire the residual government [preference shares] before it becomes onerously expensive to do so.
"Funding remains an area of uncertainty and the company is pressing ahead with plans to extend debt despite the short-term margin cost. The recapitalisation of the group should position it to begin raising unguaranteed debt." They said the bank, nonetheless, did have a "path away from recent challenges".
But the bank remains cautious over its trading prospects, saying conditions in both Ireland and the UK remained "challenging" even though "economic conditions have recently shown some signs of stabilisation after the substantial fall in economic output from early in 2008".
The Bank said it believed that losses on loans that will remain with the bank after the Nama transfer would not top a predicted €4.7bn for the three years to the end of March 2011.
The cash call will involve multiple stages including an institutional placing which is aimed at raising €500m at €1.53 a share, a 15 per cent discount to Friday's €1.8 closing price.