IRISH LIFE Permanent (ILP) says it will seek to raise at least €1 billion in the coming weeks through the sale of a bond covered under the State bank guarantee.

The company will be the fifth guaranteed Irish financial institution to raise funding using the State bank guarantee. The bond will fall due before the guarantee expires on September 29th, 2010.

A spokesman for ILP said the fundraising would be a “benchmark” bond, meaning that it would be for at least €1 billion.

“The exact timing will depend on market conditions,” he said.

AIB and Bank of Ireland each raised €2 billion from investors through bond sales in November using the guarantee. Anglo Irish Bank raised €1.5 billion and Irish Nationwide issued a £325 million sterling bond in December.

EBS completed preparations before Christmas to issue a bond under the guarantee scheme, but has so far waited for the market conditions to improve.

State-guaranteed bond sales allow the institutions to raise funding to cover their day-to-day outgoings and do not count towards capital requirements.

The nature of ILP’s business as a bank and life assurance company means it has higher capital levels and a lesser need for fresh cash than the three main banks – AIB, Bank of Ireland and Anglo.

However, ILP is expected to seek about €500 million under the State’s plan to recapitalise the banks. ILP and EBS are in discussions about a possible merger.

Minister for Finance Brian Lenihan told The Irish Times last Friday that his first priority was to recapitalise AIB, Bank of Ireland and Anglo, but that he would continue to work with the other guaranteed financial institutions.

“In relation to the smaller institutions, there may well be consolidation issues,” the Minister said.

ILP has a high loans-to-deposits ratio, forcing it to rely heavily on the wholesale markets to fund its €41 billion balance sheet.

The Government is considering extending the State bank guarantee scheme in a limited form, allowing banks to sell individual State-guaranteed bonds with a maturity date beyond two years.

A Bank of Ireland spokesman declined to comment on a weekend newspaper report that the bank was in talks with chief executive Brian Goggin over his departure. A spokeswoman for AIB said its chief executive Eugene Sheehy had the full support of the bank’s board and there was no question of him resigning.

The Government has agreed to invest €2 billion each in AIB and Bank of Ireland and to underwrite a rights issue of up to €1 billion in each bank. Bank of Ireland has approached investors about a possible right issue, though talks have been described as “casual” and “informal, early sounding-outs.”

AIB has been assessing the possible sale of its 24 per cent stake in US bank MT, but it may have to hold a rights issue to increase its capital levels as MT’s share price has fallen 19 per cent since the start of the year. If sold now, the stake would be worth about €450 million to AIB’s capital ratios.

The UK government has been left with a 43.4 per cent stake in the combined Lloyds TSB-HBOS bank after few shareholders bought new shares in a rights issue underwritten by the UK Treasury.

The merger of Lloyds TSB and HBOS was approved yesterday. The newly-named Lloyds Banking Group will become the new parent company of Bank of Scotland (Ireland) and its retail bank, Halifax.

The bank will be the UK’s biggest mortgage lender with a 28 per cent share of the market.