Upon hearing news of AIB’s intention to purchase stakes owned by minor shareholders, I believed my predicament may find a resolution. However, it appears my stake is even less significant than those they wish to repurchase.
Previously, I was in proud possession of AIB shares to the count of 100, for which I had paid upwards of €2,200. The expectation was that my investment would grow over time. However, a formidable financial crisis in 2008 altered the course. The subsequent share consolidation brought my share count, much to my dismay, to a mere singular share.
In theory, this solo share’s value sits around €5. However, its practical worth is far less as the transactional cost of selling it outweighs its market value.
My predicament is: can I consider the loss on this share for offsetting against a capital gain, given I technically still possess it?
Mr. P. O’R.
This summarises the predicament faced by thousands of shareholders across various companies. Banks, once the preferred choice of investors seeking dividends, are at the forefront of those stuck with valueless stakes in firms they once predicted a prosperous future for. But, they are far from alone.
A similar scenario followed for numerous original stakeholders of the ill-fated experiment of Irish shareholder democracy – the public listing of then Telecom Éireann. Through transitions to Eircom and subsequently Eir, the telecom company sets an example of the dangers associated with leveraged buyouts and owners profiteering at the cost of their own companies. With Eir, it became synonymous with poor customer service and disappointing returns for the initial investors.
As an outcome of multiple corporate reshuffles, amalgamations and spin-offs, loyal shareholders now hold Vodafone shares worth less than their initial investment. Additionally, many hold trivial stakes in the US telecom company, Verizon, that are essentially not worth selling.
The concern is not restricted to businesses performing poorly. Some shareholders with minuscule stakes in CRH are presently considering the potential financial impact of selling their shares now with the main listing having shifted to the US, which leaves them grappling with an unfamiliar administrative system. There are anticipations of similar actions by other firms including Flutter/Paddy Power, Smurfit Kappa and potentially Kerry and Glanbia, among others.
Undeniably, one of the complications is determining the losses incurred on such investments to counterbalance any capital gains achieved in the current year or the foreseeable future. Until the asset is retained, the loss is not recognised, a prerequisite to offset capital returns elsewhere.
The options available to recognise a loss under such conditions are limited to three. Either the shares are sold, formally bestowed to a charity via transfer (if there’s one interested), or official confirmation from Revenue declaring the shared valueless as seen in the case of past businesses, with AIB being an exception.
For individuals in a similar predicament, the financially viable departure option is the kind of inexpensive share sale proposal now being finalised by AIB and competitor PTSB. In the past, other examples include Verizon and Vodafone who offered analogous methods for their legacy stakeholders.
You are hardly alone in this. Around 90% of the bank’s current shareholders own less than 20 shares following your 250 for one consolidation reference. These shareholders control a mere 0.2% of the total business. This leaves a multitude of discontent shareholders exploring possible escapes from pre-crash investments that were made in one of Ireland’s high performing banks at the time.
The current proposal from AIB, endearingly dubbed as “odd lot”, is set to be evaluated by the shareholders at the annual general meeting on the 2nd of May. The bank proposes to incentivise these uneconomic shareholdings with a 5% premium to the current share price for those agreeing to the offer.
At the upcoming AGM, it’s highly likely that the proposal to manage the large number of non-profitable shares will be approved. This will facilitate the bank’s efforts to move past a period it wishes to forget, with the unnecessary expenses of handling such shares acting as a constant reminder. Crucially, you won’t be barred from the buyback process, an assumption you’ve somehow misconstrued.
The document detailing responses to common queries regarding the return of odd lots offer provides more clarity. It suggests that AIB’s Odd-lot Offer is set to offer specific shareholders possessing 20 or less AIB Group plc shares a chance to repurchase their shares from the firm with an added 5% premium to the market price, all without any brokerage fees. The unique selection of ’20 or less’ is strategically devised, especially given the current stock price, these holdings “would be almost completely consumed by costs if disposed of via a broker. Hence, it symbolises an apparent trapped or non-economic holding.”
Further insights reveal that the average shareholding of these non-profitable assets owned by 90% of shareholders is a mere 4.36 shares. This ’20 or less’ provision encompasses all shareholders holding up to the specific number, inclusive of your single AIB share.
However, a few conditional clauses are worth noting. For starters, the AGM vote merely grants the bank permission to propose an ‘odd lot’ offer and doesn’t directly constitute an offer. The bank maintains that any possible offer which may likely occur later in 2024, would be contingent upon the European Central Bank’s endorsement. While it’s relatively unlikely for this step to encounter any obstruction, it is mandatory and will consequently postpone the actual acquisition of your share.
One more caveat includes the limitation of this ‘odd lot’ offer to shareholders residing in Ireland or Britain only, attributing this restriction to securities law that forbids the extension of such an offer on a global scale.
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