Ciarán Hancock: Michael Noonan walking fine line as bank sell-off looms

Michael Noonan's decision to offer shares in AIB to small retail investors as well as institutions is an interesting one on a number of levels.

The Minister for Finance and his officials and advisers have been considering such a move for the past 18 months and feel that it is the right thing to do. But there will be none of the hard sell of the Eircom flotation in the late 1990s, which left most retail investors with their fingers badly burned.

This will be more along the lines of the Aer Lingus transaction in 2006. Interested parties will have to invest a minimum of €10,000 to participate in the initial public offering (IPO).

It’s the type of sum that should cause an interested investor to seek professional advice before writing a cheque.

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The Minister is also leaving himself open to criticism from political opponents and consumer advocate groups with this move. The criticism will go something like this: why should taxpayers, who have already paid €20.8 billion to the bank in return for a 99.9 per cent shareholding, have to pay more money to buy shares that they already (notionally at least) own.

Noonan would argue that his job is to get the best price for all taxpayers, with the funds raised being used to reduce our national debt, something that should help to balance the books in the years ahead.

Free shares

Then there’s the many pensioners and other investors who lost a big chunk of their investment when AIB’s share price collapsed in the wake of the 2008 global financial crash. They might feel that they should be given free shares in the bank as compensation for their losses. Noonan could counter that their beef is with the bank, not the State, and/or any professional advisers who might have suggested that they take such a large punt on AIB in the first place.

AIB would have gone bust without the State’s bailout, so it’s just a case of hard luck.

Sinn Féin's Pearse Doherty, for one, was not impressed by Noonan's plan.

“Floating the idea that some [small] investors could buy into AIB smacks of a sop to hide the fact that the public will be the big losers here,” he said.

Doherty’s view is that taxpayers will be “short-changed” and lose the influence over the banking sector that they currently enjoy.

Fianna Fáil’s finance spokesman, Michael McGrath, welcomed the move in principle but said members of the public should have their eyes “wide open and ensure they are fully informed of what they are buying into”.

He cautioned the Government against encouraging people to buy shares, given the risk involved.

The fine details of a retail offering have yet to be worked out, aside from the Minister signalling that investors will have to proactively move to buy shares through intermediaries or brokers. There will be no mass mailing to AIB’s existing 80,000-plus retail shareholders.

Precedent

We have a precedent of sorts here from Permanent TSB’s return to the main stock market in May 2015. It’s wasn’t a like-for-like transaction, given that the bank was also raising funds to help plug a hole in its regulatory capital and that its small shareholders were being diluted by the placing.

These same small shareholders were offered the chance to purchase stock in PTSB through an open offer on the same terms as the institutions. The take-up was just 17.54 per cent, raising €2.16 million for the bank. Those shares were priced at €4.50 but now trade at €2.80. That’s a hefty reduction of 38 per cent and reflects a lack of liquidity in the stock, with the State still owning 75 per cent of the bank.

The share price initially rose, so some of the retail investors might have sold out and made a profit. But most of them are probably nursing substantial losses on their punt, with no immediate prospect of an exit.

In selling AIB shares, Noonan’s priority is to achieve the best price for the State. At the same time, he’s bound to be a tad nervous about pricing it too aggressively, for fear that retail investors could get hosed in the aftermath of the listing.

Of more interest will be the actions of AIB’s senior executives and board members. The retail offering will be open to them, too.

There is no obligation on the likes of chief executive Bernard Byrne or chief financial officer Mark Bourke to buy shares in AIB as part of the retail offering. But it wouldn't look good if they don't.

Twitter: @CiaranHancock1