What are the implications of yesterday’s developments for AIB shareholders?
AIB shareholders will continue to hold their shares following yesterday’s announcement, but the value of the shares will be dramatically diluted as the Government ups its stakes from 18 per cent to 49.9 per cent and to more than 90 per cent in the new year. The other main change is that AIB shares will no longer trade on the main Irish stock exchange, but will move to the smaller ESM market from January 26th.
Who holds AIB shares and who is affected by yesterday’s move?
Until yesterday, roughly 38 per cent of AIB’s shares were held by ordinary, retail investors; 18 per cent was held by the Government while the remainder was held by institutional investors or custodians/brokers on behalf of clients. Following the €3.7 billion injection, the Government’s holding immediately rises to 49.9 per cent, rising further to 92.8 per cent following the sale of AIB’s Polish unit to Santander. It is likely to increase even further before the end of February. This will have drastic implications for the bank’s other shareholders, whose shares will be dramatically diluted in value. However, the market has in a sense been pricing in further Government ownership, so the share price has already dropped significantly.
What are the implications of the switch to the ESM?
Investors will still be able to buy and sell their shares on the public markets as before following the switch to the ESM. However, there are some differences between the two markets, particularly in terms of shareholders’ rights. For example, while in the main market shareholder approval is needed for substantial acquisitions and disposals, in the ESM no prior shareholder approval is required. In a sense this is immaterial, however, as the new Credit Institutions (Stabilisation) Bill has given the Minister the power effectively to bypass shareholders if needed – as was shown yesterday when it went to the High Court without seeking shareholders’ approval.
Nonetheless, the bank said yesterday that AIB “aims to continue providing the same level of information to shareholders as we have provided previously.” In addition it said that the bank would continue to hold AGMs at which shareholders can vote.
The other condition for listing on the main exchange is that a minimum of 25 per cent of shares are to be held in public hands. The fact that less than 7 per cent of shares will be held publicly following the recapitalisations is one of the reasons for the switch to the ESM.
The good news is that the switch to the ESM will save the bank a few bob, as the costs of maintaining a listing are much lower than on the main market (about €4,000) though it will hardly do much to alleviate the bank’s billion-euro capital hole. It is also worth noting that the ESM is generally geared at small companies and those who are hoping to engage in some fundraising to help build up their company – the switch to the ESM is thus a humbling example of how far AIB, once the big boy of the Irish Stock Exchange, has fallen.
Glass half-full?
At least AIB wasn’t nationalised. If the Government had taken 100 per cent ownership, the value of shareholders’ shares would have been completely wiped out as happened with Anglo. Even though the value of AIB’s shares will plummet, at least investors will have the chance to hold them and recoup some of their losses if the bank does bounce back. The fact that AIB shares continued to swap hands yesterday and managed to fall by only 20 per cent is testimony to this.
Glass half-empty?
AIB shares, which were once worth more than €23, will now barely be worth a few cent. As a result, pension funds and ordinary investors will see a massive reduction in the value of their investment.
