By Conor Humphries
DUBLIN (Reuters) - Permanent tsb (I:IPM) (PTSB) launched a 400 million euro (288 million pounds) public share offering on Tuesday, the first by an Irish lender since the financial crisis, in a move that will cut the government's stake to at least 75 percent.
The loss-making bank will also issue a further 125 million euros in risky additional tier one bonds to help it fill a capital shortfall identified last year when it was the only Irish bank to fail European stress tests.
The share issue and the bond sale are expected to complete over the next four weeks.
As part of the capital raising, PTSB will seek admission to the main Dublin and London stock markets, which it exited in 2011 when it received a 4 billion euro bail-out from the Irish government. PSTB's holding company is currently listed on Ireland's junior market.
The government's stake, currently over 99 percent, will be diluted as a result of the flotation and the bank could ask Dublin to sell some of its shares to meet stock market requirements that at least 25 percent of a company's shares are freely available to trade.
Dublin has said it intends to keep a majority stake in the lender.
A small rump of retail shareholders, which own 0.8 percent of the bank, will be able to subscribe for new shares.
In a trading update, PTSB said business conditions had continued to improve in the first quarter with lower levels of new defaults compared to the same period a year ago.
While PTSB has benefited from strong growth in the Irish economy, the fastest growing in the European Union last year, it is lagging larger rivals in its efforts to return to profit due to a large stock of loss-making mortgages that track the ECB's record low interest rates.
The bank is targeting a net interest margin, a key measure of profitability, of 1.7 percent by 2018. Bank of Ireland's net interest margin was 2.11 percent at the end of 2014.
Like other Irish lenders, PTSB is under pressure from mortgage holders to pass on ECB rate cutes on variable mortgage rates but the bank signalled it would not bend to public criticism and would base its pricing on "commercial" considerations.