A MULTIBILLION euro consortium of US-led private investment firms has expressed an interest to the Government in taking a large stake in Bank of Ireland (BoI) and possibly a merged group comprising BoI and Irish Life Permanent (ILP).
The interest emerges as Mr Lenihan signalled in discussions with the chief executives and chairmen of the six guaranteed banks and building societies that he expects mergers between institutions in a move that will dramatically reshape the Irish financial sector.
A plan to inject fresh cash into the banks, involving private investments and possibly State funds, is thought to be imminent. It is likely to take place in tandem with mergers leading to two enlarged banks based around the sector's two biggest players - AIB and Bank of Ireland.
The smaller institutions are likely to resist attempts to be "shoe-horned" into mergers with larger banks that would lead to a duopoly in the sector and reduced competition.
A marriage between BoI and ILP would be alter the banking market radically and a deal would give a private equity consortium - described as "a fund of funds" - a large share of the financial services market.
The merged entity would control more than 50 per cent of the Irish life insurance market and 40 per cent of the mortgage market. Bank of Ireland employs 16,000, while ILP has a staff of 5,000.
Private equity firms tend to seek a substantial return on their investments over three to seven years.
The consortium, named Maulabracka, comprises US private equity firms JC Flowers and the Carlyle Group but could involve other international investors given both firms' connections and depending on the size of bank stake it seeks to acquire.
The Maulabracka consortium, named after a townland near Dunmanway in Co Cork , was assembled by investment managers Nick Corcoran and Nigel McDermott, directors of Dublin firm Cardinal Asset Management. New York-based investment bank Sandler O'Neill is also advising the consortium.
The group has been in discussions with the Government about taking a substantial stake in BoI, possibly more than 40 per cent, and has also expressed an interest in buying into a merged entity of BoI and ILP.
Bank shares closed down amid growing concerns among investors about a potential recapitalisation through private equity firms. Existing shareholders could see the value of their stake fall as a result.
Minister for Finance Brian Lenihan said he raised reform measures with the banks in a bid to shore up the supply of credit to businesses but he declined to comment on any potential recapitalisation.
"The Government is determined, on foot of the guarantee which has stabilised the banking sector, to reform the banking sector," Mr Lenihan said.