Q&A

Your personal finance queries answered

More confusion over valuing Eircom shares

Q

I enjoyed your recent article about calculating the loss on an Eircom holding, but have a question about an element of the calculation. You say the Eircell business was deemed to be worth €2.20 of the original purchase price, then add: “Allowing for the fact that each Eircom share became 0.9478 of a Vodafone share, the “original” price of your Vodafone shares was €4.66 to the nearest cent”.

If the Eircell business was worth effectively €2.20 per share and each share was converted to 0.9478 of a Vodafone share, the original cost of the Vodafone share would seem to be €2.20/0.9478, ie €2.32 – or am I missing something?

- Mr TR, e-mail

A

No, I am. The 0.9478 of a Vodafone share received by the original shareholders in Telecom Éireann was for every two Eircell shares, not one. As it happens, there is another issue that must now be taken into account. While the “original” price of your Vodafone shares was €4.66, this was in relation to the original purchase price of the Telecom Éireann shares.

However, as most people have held on to the shares – unless they sold them at a loss – the small matter of indexation comes into play. Up to the end of 2002 (when then minister for finance Charlie McCreevy abolished it), holders of shares and other assets could apply an “indexation multiple to the original price paid to allow for the impact of inflation.” Essentially, the multiple increased the original price and lowered the capital gain.

Allowing for indexation, the Eircell holding would, as of now, be working off a base cost of almost €2.64. This would make the “base cost” of your Vodafone shares €5.27, meaning you are likely to have to wait even longer for a profit on the transaction.

By the way, in relation to the bonus shares received by people who stayed with the Eircom investment from the outset, the loyalty shares they received before the split are deemed by the Revenue to have a base cost of zero. That means that any money received in respect of these shares is a capital gain.

Could An Post savings be in danger?

Q

I know you don’t have a crystal ball but in view of the debt situation, could An Post savings (bonds and certificates) be in any danger?

- Mr AR, Dublin

A

You’re right – a crystal ball would be very valuable right now. In its absence, all I can tell you is that there are very few certainties in the financial market these days.

Anyone who predicted back in mid-2008 that in three years time most of the Irish banking sector would be nationalised and the IMF would have a strong say in how we ran our economy, would have been locked away.

That being said, there is every reason to be confident that An Post savings are safe. They are guaranteed by the State and the State is not insolvent. Ahead of the IMF arrival, readers posited that such a move would render worthless state guarantees on savings. It didn’t. As I had suggested, the IMF has little to gain from wiping out the savings of these generally small investors.

The EU is going to great lengths to prop up the currency and the construct of the euro zone so there is equally little reason to see why it would undermine An Post savings.

This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2. E-mail: dcoyle@ irishtimes.com