Free shares given to the 200,000 members of First Active will start trading on the Stock Exchange today at £2.25 each, 40p below the lowest price predicted by the company last month.
At that price, the allocations of 450 free shares for each qualifying account are worth £1,012.50, compared to some £1,500 if the shares had been floated in the middle of the price range for which the former building society was aiming.
Those prepared to hold the shares will hope that they will rise in value, although this cannot be taken for granted in the current volatile market conditions. However, those who opted to sell the shares immediately will receive less cash than they would have hoped for.
First Active said yesterday that the price was decided on the basis of the trading levels of Irish financial stocks on the Irish and London stock exchanges at the close of business last Friday. Members who subscribed to buy additional shares face further disappointment, because of the huge demand for shares from both members and from big investing institutions.
Most members will receive considerably fewer shares than they applied for. Only those who applied for the minimum £250 worth of extra shares will receive their full allocation. After that, First Active has substantially scaled back the allotment. Those who applied for the maximum of £5,000 worth will receive only £947.25 worth, while those who qualified to apply for £10,000 will end up with £1,280.75 worth.
The low share price announced yesterday by the bank has pleased big investment institutions, which were able to subscribe for 20 per cent of the total shares at what they believe was a good price.
The offer price level may also mean substantial investment gains in the years ahead for First Active's senior management, who have been granted substantial options to buy shares in the future at £2.25 each.
If the share price appreciates strongly in line with a recovery in the market, group managing director Mr John Smyth, deputy managing director Mr Tony Shanahan and group operations director Mr Paul Reville stand to gain a lucrative return.
In the long term, members who hold on to their shares may also see their value appreciate substantially. The shares will begin trading on the Dublin and London markets today, giving a total market value to First Active of £340 million. Through the flotation, it will raise £104 million.
The former building society is hoping the shares are pitched at a level which will ensure they will rise when trading begins. However, more than 13,000 members have opted to immediately cash-in their shares and will miss out on any improvement in the share price.
Analysts suggest the shares should improve in value today. Goodbody Stockbrokers suggest that amid the current uncertainty, if the shares rise to 240p, shareholders will be doing very well. A rise to 250p would be "excellent."
The share price performance over the coming days and weeks will also depend on whether a strategic investor tries to buy a stake in the company.
The timing of the flotation is unfortunate, with the uncertainty across world markets driving share prices sharply lower. First Active set the price of its shares last Friday, when Wall Street was again struggling and when financial stocks in the Irish market all dropped in value.