The plans by Bank of Ireland, which will still see the taxpayer's stake in the group rise, is the latest stage in the recovery of the Republic's banking sector following a government-led bail-out.
Last year, the country came close to a similar market attack as Greece due to its own financial and banking crises and BOI's plan will test investment appetite as the rescue of the fellow eurozone member kicks off.
The Republic's biggest lender said yesterday it would raise up to 1.9bn through a rights issue, though that could be reduced through a debt-for-equity swap. It is looking to raise the rest of the money by placing shares with institutional investors. Shares fell in early trading before closing virtually unchanged.
One Dublin-based trader said: "It's a few people trimming ahead of the rights issue. It's all smaller (investors] selling it today."
Sebastian Orsi, an analyst at Merrion Capital in Dublin, added: "I'd expect a good level of take-up of the rights." The rights issue is due to be voted on at a shareholder meeting on 19 May.
Ireland's financial regulator told the bank last month to raise 2.7bn to meet new minimum capital requirements and compensate for losses on discounted loans sold to the National Asset Management Agency (NAMA), Ireland's co-called "bad bank".
Under yesterday's plan, for which Citigroup, Credit Suisse, Davy, Deutsche Bank and UBS are acting as joint bookrunners and underwriters, the state will pay for its part in the rights issue by handing over more of its preference shares. BOI will also pay almost 500 million to cancel warrants which would otherwise entitle the government to a further ordinary stake.
Before the capital raising the government held a 16 per cent stake, or 34 per cent including the warrants. The state will retain a maximum stake of just over 36 per cent after the deal. Irish finance minister Brian Lenihan said: "Bank of Ireland is the first of our financial institutions to emerge from the banking crisis." Irish banks were hit hard by the slump in the property market.
BOI is seen as the strongest of the five banks participating in the NAMA scheme.
Last year's state injections to keep nationalised Anglo Irish Bank afloat alone cost 4bn, giving Ireland the highest budget deficit in the EU compared with the size of the economy.