A gamble on AIB that may pay off

1916 to see beginning of move out of State ownership

 

Once Ireland’s largest bank, AIB was one of the biggest casualties of the financial crash. It was rescued by the State, which invested €20.8 billion between 2009 and 2011. By next year the taxpayer could see some of that money repaid as the bank slowly moves in stages out of State ownership, via a partial sale of its shares. But whether the planned initial public offering (IPO) goes ahead in 2016 may depend on who forms the government after the general election. Much will also depend on whether the economy’s strong recovery continues and whether financial markets remain strong.

The capital restructuring of the bank has included a consolidation of AIB’s shares to remove a long-standing anomaly – its distorted market capitalisation. As a consequence of the series of State bailouts, AIB now has some 532 billion shares in issue. But of these only 0.2 per cent have been available for sale. Because the share price – and market value of the bank – has been set by these very small number of freely traded shares, for which demand has been strong, AIB’s market capitalisation has been hugely overstated and its shares greatly overpriced. The proposed share consolidation, to reduce the number of shares in issue, was always envisaged. Small shareholders who are now being offered one bank share for every 250 held are facing large losses. Quite why small investors continued to buy overvalued AIB shares, despite consistent warnings not to do so, is not easily explained and reveals a serious lack of investment knowledge.

For most people, a key concern is whether the €21 billion advanced by taxpayers to save AIB can be repaid. Mr Noonan remains “confident that the State will ultimately recover the full value . . . in the years ahead”. And AIB’s former chief executive David Duffy, when asked when full repayment was likely, indicated 10 years. From a position where some years ago the bailout of AIB was seen as a high-risk gamble, given doubts about the bank’s basic solvency, its strong recovery and the prospect of full repayment of its bailout money is a prospect few then would have envisaged.

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