AIB LAST night warned its few remaining shareholders that the government's stake is set to increase to more than the current 93pc, and said the state will take the new shares at a big discount to the current share price.
It means the remaining private shareholders will see their rump stake in the bank reduced further, AIB said.
AIB needs to raise €13.3bn by the end of July to meet a capital target set by the Central Bank. The state is the only viable source for the vast bulk of that new money and will demand a bigger stake in the bank as a result.
The state has already pumped €7.2bn into AIB.
Last night AIB said talks with the government will be completed within the next week and the bank will then announce the final terms and structure of any capital raising transaction.
Around €1.6bn of that target has been achieved by buying back subordinated bonds. Some subordinated bonds have yet to be bought back, but the bulk of the €13bn that is required as a result of the stress tests will come from a direct cash injection by the state.
That has long been known, but AIB said last night that recent discussions with the government have made it clear that any subscription for new shares by the state will be at a very low price, and at a very significant discount to the current share price.
The bank is obliged to alert shareholders to any news that has a potential bearing on share prices.
Just 7pc of AIB is in private hands and those shares closed yesterday at 16c each, before the announcement was made.
AIB said that if the state does subscribe for shares at a low price, as expected, it will increase its stake substantially beyond the current 93pc.
AIB and EBS will be merged at the start of July to create one of two "pillar banks" alongside Bank of Ireland. The bank has been selling non-core assets in an effort to shore up its position, but with little effect.
In May it sold a 49.9pc stake in Bulgarian American Credit Bank for just €100,000, despite paying €216m for the stake. The Bulgarian bank is loss making however and will have to be recapitalised by its new owner Clever Synergy Investments.
The buyer is understood to have committed to repay a €25m bond due to be repaid next month.
Last year AIB suffered losses of €10.4bn, the second-worst loss ever recorded by any Irish company. The record is held by Anglo Irish Bank.