The warning from Minister for Finance, Michael Noonan, to investors not to buy AIB shares may seem, on the face of it, unusual. However the status of AIB on the stockmarket is highly unusual and there is no question but that the price of the small number of shares floating on the market in no way reflects the value of the company.
So the Minister’s warning is welcome, even , arguably, overdue. It follows an earlier statement from the bank – reiterated after the Minister spoke – which pointed out that the valuation indicated by the share price was out of line with international norms.
The state owns more than 99 per cent of AIB and the fact that its shares have been overvalued reflects the very small part of its equity which trades on the market. Even against this backdrop it is hard to explain just why the shares have traded at such an unrealistic value for so long.
Financial analysts have recognised this anomaly and stockbroking clients would have advised their clients to steer clear. Despite this, however, some private investors have been buying AIB shares, many using share-buying routes where the client buys, but does not receive any advice.
AIB’s capital is going to be restructured in the coming months, in advance of a move to start selling some of the bank to private investors. As a consequence of this, investors who bought at inflated prices are going to lose a lot of their cash. Noonan is trying to avoid more people being caught in this trap, but for some it is already too late.
The Minister, the bank and the stock exchange may all have felt themselves constrained in commenting on this unusual situation over the past year. It is welcome that the bank and the Minister have now done so. There are questions about why the situation went on for so long without investors getting such clear warnings.
However investors also have a duty of care when looking after their own money. Unfortunately some who did not do their research before buying the shares are now set to lose out as the restructuring proceeds in the months ahead.