BANK OF Ireland has held talks with four parties, including US private equity firms Texas Pacific Group (TPG) and Kohlberg Kravis Roberts (KKR), which have expressed an interest in making an investment in the bank.

The parties include the Irish-led Mallabraca consortium, which includes US private equity firms JC Flowers and the Carlyle Group, and two sovereign wealth funds from the Middle East.

Another US private equity company is also in talks with the bank.

The bank has met all four interested parties and has sought further proposals from them before the bank's chief executive, Brian Goggin, and governor Richard Burrows meet Minister for Finance Brian Lenihan tomorrow.

Discussions are at an early stage and have not yet reached due diligence. A spokesman for the bank declined to comment.

The bank said last Friday it had received "unsolicited approaches from a number of parties wishing to make an investment in the group".

TPG has also been in contact with at least one more institution with a view to making an investment. The firm has ties with Ireland; its founder David Bonderman is chairman of Ryanair.

New York-based KKR assessed a possible bid for Eircom in 2001.

The Minister said at a financial services industry dinner on Tuesday night that he had asked all six guaranteed banks and building societies to enter a "period of reflection" on how the banking sector might be reformed.

Mr Lenihan said the sector "should not be rushed into solutions" and that banking reform needed reflection and time. "We cannot reform the sector on the back of an envelope."

Mr Lenihan signalled in meetings with the chief executives and chairmen of the guaranteed financial institutions last Thursday that he envisaged mergers in a consolidation of the banking sector in a bid to strengthen it further.

The banks and building societies will outline any discussions they have had with other institutions and potential external private investors at a second one-day round of meetings with the bank chiefs scheduled for tomorrow.

Bank of Ireland is believed to be considering a number of other options with a view to strengthening its capital position that may not require external investment.

The bank is conscious to prioritise the interests of its shareholders in any potential capital raising that it may be considering and does not feel under any pressure to act immediately. The bank said at its half-year results earlier this month that it could not rule out raising capital but had no plans to do so at that time.

Bank of Ireland's largest shareholder, US activist fund Harris Associates, raised its stake in the bank to more than 6 per cent last week, saying on Tuesday that it supported the bank's management and that it didn't believe the bank needed to raise capital at this time.

The State has also not ruled out providing capital to Irish financial institutions but has repeatedly said it would be "a last resort".

Mr Lenihan has said he would welcome private investment in the banks at appropriate terms that serve the public interest.

The sovereign wealth funds involved in the Mallabraca consortium have not yet been named and it is believed that the consortium has not identified the funds in its initial discussions with the bank.

Bank of Ireland is being advised by its subsidiary, IBI Corporate Finance, and Citibank in meetings with the potential investors.

Bank of Ireland rose more than 13 per cent to €1.38, valuing the bank at almost €1.4 billion.

Irish Life Permanent, which had the highest volume of trading on the market, climbed 10.5 per cent to €1.36, giving the company a market value of €376 million.

AIB rose 3 per cent to €2.40, while Anglo Irish Bank finished down 4 per cent to 88 cent.