The State has agreed a deal with a group of large private investors which could mean they will put as much as €1.1 billion into Bank of Ireland in return for a significant minority stake.

The development means the amount of money which taxpayers will have to put into the company will be reduced.

The Minister for Finance, Michael Noonan, said there would be no additional risk sharing for the State.

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Investors in the deal are understood to include a Canadian fund, Dublin's Cardinal Captial and US businessman Wilbur Ross.

Neither the Department of Finance nor the bank will comment on the identity of the investors. Any shareholder with more than a 3% stake in the bank will have to declare their holding to the stock market on Friday.

The State was advised on the deal by Goldman Sachs. Much of the work in the Department of Finance was conducted by the its own banking team, many of whom have been seconded from the National Treasury Management Agency.

In March, the Central Bank required Bank of Ireland to raise more money to cushion against future bad loans. While bondholders have helped provide some of that cash, the company still needs to raise €1.9 billion which it is doing by selling new shares.

At an extraordinary general meeting earlier this month many shareholders baulked at the idea of buying more stock in the bank. That meant the State would have to shoulder the burden of providing the money and in return could own a majority of the bank.

However, today's announcement now means a group of private investors are willing to buy a substantial portion of the new shares along side the taxpayer.

The maximum the private investors will own will be 37% of Bank of Ireland and the minimum will be 14% but this will rise to 19% after a top-up.

The maximum the State will hold will be 32% and the minimum will be 15%. The deal means the taxpayer won't own a majority of the bank. It also shows outside investors have some confidence in the company's prospects.

Mr Noonan said the development would mean a saving for the taxpayer and would increase confidence in the banking sector.