Bank of Ireland is pencilling in a November rights issue to raise extra capital so it can buy out a portion of the preference shares taken by the government as part of a €3.5bn recapitalisation of the bank in March, according to informed sources.

The bank is understood to be planning a European and American investor roadshow in the autumn to rekindle interest among major international institutional investors which took flight from Irish banks as the financial crisis caused a collapse in share prices.

The move, if successful, could reduce the government stake from 25% to as little as 15% and minimise the possibility of majority state ownership after the bank's toxic development loans transfer to Nama next year.

It would also significantly cut the annual €280m in coupon payments the bank has to pay the Department of Finance for its shares.

Market sources believe the bank has the potential to raise €1.5bn in equity, as long as its bad loans outlook does not get worse and especially if the government agrees to underwrite the issue.

Management is said to be keen to get the issue done before the end of the year, which is the deadline for redeeming the preference shares early and cancelling the attached warrants.

Most trade in Bank of Ireland shares is now among retail investors and hedge funds, which unusually make up more than half the share registry.

Industry sources have indicated in the last two months that Irish and international funds have been looking for large blocks of shares to start rebuilding their own stakes. However, availability has been limited and the institutions have mostly stayed out of the market. This has effectively put a ceiling on share prices.

New Bank of Ireland chief executive Richie Boucher has moved quickly to put the ailing bank back on its feet since taking over from Brian Goggin in February.

Bank of Ireland was the first Irish bank to engage in a discounted debt buyback which raised a surprising €1bn in core capital. Department of Finance officials have also said it has been forthcoming and cooperative in Nama negotiations.