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Making sense of the numbers around AIB’s share purchase offer

Bank has offered to buy out legacy investors who were all but wiped out in the crash and now hold shares worth less than the cost of selling them

AIB legacy shareholders have been offered a chance to get out of the bank, albeit at a massive loss.
AIB legacy shareholders have been offered a chance to get out of the bank, albeit at a massive loss.
Dominic Coyle's picture
Dominic Coyle
Tue Apr 09 2024 - 05:30

I’m very confused about AIB shares. I was reading the piece in your paper last week which said that 20 shares in the bank equate to 5,000 old shares. Before the banking crash, AIB had about one billion shares and was valued at around €25 billion. Today, it is valued at roughly €12.5 billion. That seems to be roughly half, not 1/250th?

Mr DC

The news last week from AIB was a very unwelcome reminder to tens of thousands of shareholders at AIB who were effectively wiped out by the financial crash. As they know only too well, their holding in the business is worth a fraction of what it was back then.

The problem here, as far as I can see it is that you are not comparing apples with apples.

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You’re absolutely correct that AIB had about a billion shares before the banking crash in 2008. As best as I can see from their annual reports, the average number of shares in issue in 2008 was 879.9 million.

Their pre-crash peak market capitalisation comes a bit earlier – 2007 as far as I can tell. You may be right that they hit a market cap of €25 billion but on the basis of my brief scramble through the history of the bank, it seems to have been closer to the €21 billion mark that it was trading around at one point in 2006.

Either way, it does not alter the situation much.

You’re certainly correct that the bank is trading at a market cap of about €12.5 billion these days. In fact, it is doing slightly better than that, and was worth €12.95 billion at the close of stock market trading last Friday.

But here’s the thing. It is not as simple as measuring today’s market cap against the bank’s peak and saying, there you go, it is worth 52 per cent or 62 per cent of what it was worth back before the crash (depending on whether you base it on my figures or yours), so the loss being suffered by the shareholders who will be offered the chance to sell out under the bank’s new plan is only about half.

The missing piece of the puzzle is the 523-odd billion shares the bank issued like confetti during its sequence of bailouts between 2009 and 2014.

While the original shareholders still held their 880-odd million shares, their stake in the bank had been watered down from 100 per cent ownership to less than 0.2 per cent of the bank.

The only reason they were there at all was to suit the Government – by then the overwhelmingly dominant shareholder in the bank.

Had the State taken full ownership of the bank, rather than settling for 99.8 per cent, the bank liabilities would have ended up on the State’s balance sheet, making rather a mess of the size of our national debt. Allowing the original shareholders to retain a sliver of AIB avoided this. On such judgments are our national accounts based, which is perhaps a worrying story for another day.

The problem was exacerbated because some hopelessly optimistic investors were attracted to the penny stock that was AIB and decided it was worth a punt – despite repeated warnings from government that the share price was in no way an accurate barometer of the bank’s stock market value and that it was hugely overvalued.

In 2015, the bank decided to get its house in order on the share register front. Five hundred and twenty-three billion shares is a lot to be juggling and with the reckless share trading that was distorting the value of the bank, consolidation clearly made sense. By November 2015, when it announced that it was going to act, the bank was nominally worth €36 billion on the back of trading which had pushed the shares up to seven cent. That was more than international banking giants such as Deutsche Bank and others.

So it decided to consolidate the shares with everyone getting one new share for every 250 shares they owned previously. Converting preference shares held by the government at the time, this exercise saw 675 billion shares reduced to 2.7 billion on December 21st of that year when the new shares started trading.

So 250 shares that would have been worth €17.50 just before the consolidation announcement and €8.75 on the last day the old shares traded on December 18th became a single share which was worth €8.50 at the close of trading on December 21st. However, those 250 shares would have been worth just shy of €6,000 – €5,987.50 to be precise – at the pre-crash peak.

Things haven’t really got any better for these beleaguered shareholders since 2015 with the price dropping as low as €5.04 on Monday.

So these shareholders who now hold up to 20 shares would have invested anything up to €120,000 if they had bought at the peak and those shares are now worth €100.80 in the market. As it happens, AIB says the average legacy shareholder – a group that accounts for 69,000 of the bank’s 75,000 current shareholders – holds just 4.36 shares which are now worth just under €22.

These people are effectively locked in. It would cost them more to sell their shares through a stockbroker than they’re actually worth, adding insult to their injury. And given the share price performance of recent years, they are probably disabused of any notion of recovering any substantial ground in the foreseeable future.

Buying them out seems the sensible thing to do from both the bank’s perspective and that of the shareholders. Their only consolation? It appears legacy shareholders in rival bank PTSB are set to fare even worse under a similar “take out” plan being considered there.

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