Bank of Ireland will raise from private sources much of the 2.7 billion euros ($3.6 billion) it needs, potentially becoming the only member of Ireland's bad bank scheme to escape a fresh bailout.
The bank's statement on Wednesday that it was in fundraising talks with investment banks is a relief for the Irish government, which faces years of scrimping to plug a black hole created by the profligate financial sector.
The heaviest losses of all stem from now nationalized Anglo Irish Bank, which on Wednesday confirmed weeks of speculation by announcing a loss of 12.7 billion in the 15 months to December, the deepest shortfall in Irish corporate history.
The bank needs up to 18 billion euros of fresh state capital, almost as much as Dublin borrows in a year to fund its budget deficit.
Prospects for Bank of Ireland were relatively rosy and its shares jumped more than 24 percent after it said loan losses had peaked and it was in talks to raise capital to compensate for poor returns on property loan sales to the bad bank, the National Asset Management Agency (NAMA).
Ireland's biggest bank by market value will privately raise about half of the capital it requires to provide a buffer against future losses. The state will convert some of its 3.5 billion euros of preference shares into ordinary equity but should not have to underwrite the rights issue.
It's not a proud boast to say you're least worst... Relative to performance that kind of an issue is not something we take a lot of comfort out of, Richie Boucher, CEO of Bank of Ireland, told a news conference.
Referring to the scale of property losses other banks were exposed to, he said: I think the level of debt and exposures is pretty big, it's pretty frightening.
The problem all the Irish banks face will be competing for business in Ireland's shrunken domestic banking sector.
In all, the three banks and two building societies involved in the bad bank scheme require at least 22 billion euros, with a possible further 10 billion for Anglo Irish at a future date.
The listed bank with the biggest capital problems, Allied Irish Banks (AIB) has been given time to try and sell assets before getting a fresh bailout, but some analysts still think it could end up 75 percent owned by the state.
AIB shares remained under pressure on Wednesday, falling 2.8 percent as it continued to digest Tuesday's flood of announcements on the level of discounts NAMA will pay to take on property loans and the consequences for banks' capitalization.
They're not in a good position, but at least people know. Investors are looking at the clarity of what they have to do, one trader said of Allied Irish. For Bank of Ireland, there's a half decent underlying operating base.
Bank of Ireland is selling the first tranche of its loans to NAMA at a discount of 35 percent and said the discount on the whole 12 billion euro portfolio will be in line with its previous guidance which pointed to a lower discount.
On Wednesday, it also reported an underlying loss of 1.47 billion euros for the nine months to the end of December, having shifted the end of its fiscal year to match the calendar year.
EFFORTS TO CUT
The injections into Anglo and two building societies take the form of promissory notes, in effect not paid for up to 15 years, which means it should not hold up Ireland's efforts to cut what is one of Europe's biggest deficits as a ratio of gross domestic product (GDP).
But the cost of cleaning up Anglo may add 20 billion euros, about 12 percent of 2010 GDP, to government debt over 10 to 15 years, Chief Economist Rossa White at brokerage Davy said.
The Irish government has insisted the cost is manageable, saying it has stabilized its economy with a series of public sector cuts announced in last December's budget.
Ireland's fiscal measures have done much to reassure international investors, who have compared the country favorably with Europe's other struggling nations. The challenge is to maintain fiscal discipline.
The magnitude of the financial problems is absolutely vast, said Jim Power of financial services firm Friends First. The budgetary medicine over the next few years is going to be extremely hard to swallow. Provided the government continues to address the problem, we should scrape through.
The latest economic data on Wednesday added to the evidence Ireland's economy is stabilizing at a low level. The number claiming unemployment increased by only 600 in March and the decline in private lending accelerated only marginally from 7.1 percent to 7.3 percent.
Finance Minister Brian Lenihan has said Ireland should begin emerging from recession late this year.
Bank of Ireland shares rose 24 percent to 1.60 euros by 1450 GMT, after rising as high as 1.7 euros. The stock has bounced from a low of 0.12 euros set a year ago but languishes well below a peak of 18.83 euros seen in early 2007.
(Additional reporting by Padraic Halpin and Barbara Lewis; Editing by David Holmes and Jon Loades-Carter)