Bank of Ireland shares closed down over 6% in Dublin this afternoon as the State was issued with 184 million shares in the bank today.
The development has the effect of diluting the existing shareholders in the bank and means that the State will have a 15% stake in the bank, worth €250m.
Last year the State invested €3.5 billion in the financial institution as part of its rescue of the banking system. In return, the bank was to pay an annual dividend of 8%, worth €0.25 billion.
But the EU blocked banks in receipt of State aid from making such payments.
The bank had to give the Government shares instead - although the State had hoped to get cash.
With its share price at only €1.26 - down from a high of €18 in the boom - raising €250m meant giving the Government a 15% stake in the bank.
Speaking on RTÉ News this morning, Finance Minister Brian Lenihan said that while not the first option, shares had been part of the negotiations of a rescue plan for the bank.
The Minister also said he would be reluctant to nationalise the banks, but that this country needs a viable banking system.
Soden urges sale of payments system
The former chief executive of Bank of Ireland, Mike Soden, has said that the bank would generate a considerable amount of money if it sold its payments system.
The bank's payments system is the infrastructure over which bank customers are charged for processing cheques and using bank cards. Mr Soden says the system generates significant cash flow each year and would be worth a substantial sum of money.
The system's biggest owners are Bank of Ireland and AIB, with the smaller banks having a smaller holding.
Speaking on RTÉ Radio, Mr Soden said the likelihood of either foreign or domestic investors taking a stake in the bank is remote while the prospect remains of the Government's shareholding getting bigger.
He said it was unfortunate the bank could not pay its dividend, and predicted that the Government will end up with a majority shareholding in the bank.
He said the bank's need for capital remains enormous, and that NAMA is needed to create a market for property.
After losing as much as 11% earlier, Bank of Ireland shares closed 6.2% at €1.18 this afternoon.
