The endgame is in sight for Bank of Ireland shareholders.

We should begin, once more, to trust in the strength and durability of the bank as the recent actions by the Government are moving the bank back to full financial health.

But the prospects for its shareholders depend very much on two things: the price struck when the property loans are transferred to the National Asset Management Agency (Nama), and the support from shareholders when the bank attempts to raise fresh capital later this year.

The bank's difficulties in accessing funds from international markets has now eased thanks to the recent injection by the Irish Government of €1.5bn in capital, and the announcement that the Government will guarantee future funding from these markets for up to five years.

Many investors have been concerned at the impact of future bad debts arising from property loans, particularly as Bank of Ireland has estimated that this could reach €3bn in the three years to March 2011 in a worst-case scenario.

However, these concerns will now be largely eliminated because these property loans are being transferred to Nama.

The shareholders remain concerned about whether the bank will be nationalised because it may need fresh capital from the Government due to the losses to be recognised when they write down their property loans as they transfer them to Nama.

However, there is reliable information that the bank will be able to withstand these losses and avoid part nationalisation.

At a recent conference call, John O'Donovan, the bank's chief financial officer, advised that its capital ratio would be above international requirements in March 2011 even if they suffer their highest estimate for bad debts over the next few years. These estimates are grounded in a detailed review of the relevant loans by the bank's individual credit officers. The estimates have also been independently confirmed by leading international credit consultancy Oliver Wyman.

So the only way that the losses to be recognised on the transfer of the loans to Nama would prove to be too large would be if the agency insisted on the loans being transferred at a massive discount.

It is unlikely that such a course would be pursued by Nama as it runs counter to the Government's objective in keeping Bank of Ireland as a privately owned institution.

Also, Nama would only wish to follow such a course if the valuations of their advisers were to be more pessimistic than those prepared by the bank's own credit officers. It would be unwise to rely on Peter Bacon to determine the appropriate valuations as he has not reviewed the individual loans to be transferred.

The bank's own detailed assessments, independently confirmed, are likely to be much more accurate.

However, if Nama were to somehow insist on unreasonable write downs of the loans, the bank's directors would be in an untenable position. They have a fiduciary duty to look after the interests of their shareholders.

This means that the directors cannot transfer loans to Nama, where they believe that the valuations on transfer would result in higher losses to be borne by the ordinary shareholders than if the loans remained on the bank's books.

In the event of serious disagreement it is unlikely that the Government will pass legislation which will force the bank to transfer the loans at very low values. If they did so, they could be accused of impoverishing the shareholders in the interests of freeing up credit for Irish customers. This would be very unacceptable to the shareholders particularly as very many of them are overseas shareholders.

Bank of Ireland has welcomed the setting up of Nama and this suggests a quiet confidence on the part of the bank's management that agreement on valuations will not pose a problem.

When the loans have been transferred, Bank of Ireland will then have crystallised the their property losses and any future losses will be affordable from the bank's earnings streams over a 15-year period.

At this point, the bank will be in a strong position to raise new capital from its existing shareholders. The bank will need to raise €1.5bn from the existing shareholders before December 31, 2009, to ensure that the Government cannot exercise its option, under the recapitalisation scheme, to purchase 10 per cent of the ordinary shares of the bank at 20c a share.

The take-up by the Government of Bank of Ireland shares at such a low price would be a disastrous permanent dilution to be borne by the ordinary shareholders. Many shareholders have already lost more than 90 per cent of the monies they have invested in Bank of Ireland and there would be little chance of significant recovery in the share price if the Government were to exercise this option.

The ordinary shareholders will have the confidence to support the new capital requirement of the bank because the property loans will have been transferred to Nama and the immediate losses associated with these loans will have been fully recognised by the bank. Bank of Ireland shareholders must wait until the property loans are transferred at fair value to Nama. At that point, though it may seem difficult for shareholders who have already lost thousands, the final endgame is for them to commit further funds to the bank, thereby avoiding nationalisation and helping the share price to make solid gains in the years ahead.

- Paddy Stronge