AIB becomes Europe’s ‘most valuable’ bank

Market cap now dwarfs €64 billion bailout but is a ‘false valuation’

State-owned AIB is now the most valuable bank in Europe following a flurry of share buying recently by retail investors here.

AIB’s share price rose by 9.3 per cent in Dublin yesterday to 15.3 cent – roughly three times the level the shares traded at in mid-July. With 520.7 billion shares in issue, this means the Irish bank has an eye-watering market capitalisation of €79.7 billion.

By contrast, Bank of Ireland, which is just 15 per cent owned by the State and is slated to return to profitability before AIB, has a market value of €7.8 billion.

AIB’s market cap now dwarfs the €64 billion bailout of the financial sector by the government since 2008 but it is a false valuation, given that 99.8 per cent of the bank is owned by the State and there is no liquidity in the stock.

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Just 0.2 per cent of the shares constitute its free float and this is traded on the ESM, the market for junior stocks on the Irish Stock Exchange. No institutions trade in the stock.

Traders said yesterday that the incremental increase in the share price had been driven by a recent strong run by rival Bank of Ireland and signalled that the Irish economy might be turning a corner after five years of austerity.

“There’s no logic I can see to the share price at this level,” said one trader yesterday. “I’m pretty sure it’s not worth close to €80 billion. Either it shouldn’t be traded on the market or they should allow it to be shorted, which would sort this out.

“Unlike Bank of Ireland, it was never taken off the list of stocks that couldn’t be shorted from a few years back.”

The State’s shareholding in AIB and Bank of Ireland is managed by the National Pensions Reserve Fund (NPRF), under direction from the Government. According to an independent valuation by Goodbody Corporate Finance for the NPRF, AIB shares were worth only €0.0079 at the end of 2012. That would give it a market value of €4.1 billion.

No comment was available from AIB yesterday on whether any intervention was being considered by the board.

A spokesman for the Department of Finance said he was “not aware of any change to the current position” relating to the trading of AIB shares. The NPRF declined to comment.

Ciarán Hancock

Ciarán Hancock

Ciarán Hancock is Business Editor of The Irish Times