If the lender cannot find an investor or persuade its largely retail shareholder base to participate in a 1.91 billion euro ($2.8 billion) rights issue then the state, which is underwriting the offer, could end up with a 70 percent stake.

"The State is in discussions with potential equity investors in Bank of Ireland in relation to a possible material investment in the bank," the Department of Finance said in a statement.

"As at the time of this announcement, these discussions continue and may or may not lead to a transaction."

Dublin has closed two of its six domestic lenders, merged another two state-controlled institutions and will soon take over a fifth as it seeks to draw a line under a banking crisis that forced the former Celtic Tiger economy into an EU-IMF bailout.

Copyright Reuters, 2011