BANK of Ireland's market value will have to rise more than sevenfold for the government's 40.7% effective stake in the bank to break even.
The government was forced to accept a 15.7% stake in the bank late on Friday in lieu of a cash dividend on the €3.5bn it invested in preference shares in the bank last year. The investment also gave the state warrants on a further 25% of the bank's shares.
For the government to break even on the stake, the bank's market cap would have to rise to €8.6bn. It closed last week on €1.26bn. The last time the bank's market value was near that level was in April 2008.
The bank was forced to issue the ordinary shares because it is prohibited by the European Commission from making dividend payment on some securities under state aid rules. It had been due to make the €250m payment yesterday.
"We argued this [preference shares] was the wrong sort of capital to put in," a senior market analyst said. "This now means the government will have to follow its money in any rights issue to maintain a constant shareholding."
The government has been desperate to avoid taking a direct stake in the banks. The National Treasury Management Agency, which manages the state's investment in the banks, had said it would have preferred to wait for a cash payment.
It is understood that AIB, which declined to comment, is still in talks with the Department of Finance and the European Commission about its dividend, which is due to be paid to the government in early May.