After a decade and a half of handling the financial turmoil caused by Ireland’s bank bailouts, lenders are finally addressing the remaining fallout – the numerous shareholders left with virtually useless shares. AIB and PTSB have introduced “odd lot” offers, a move to buy back shares from those potential investors who would incur more expenses in trading fees than what their shares would actually yield at today’s rate.
Undoubtedly, these investors are in a financial pit, having placed their bets during a time when such shares were considered solid sources of income and bank executives boasted of their abilities to prevent major financial periods of downturn.
Moreover, this buyback strategy is also fuelled by the banks’ desire to cut costs. For instance, at PTSB, approximately 90% of the business is held by 128,000 out of 129,000 shareholders each with less than 100 shares valued at no more than €170 currently. A similar scenario is seen at AIB where 67,000 shareholders out of 75,000 each own less than 20 shares valued less than €110.
The cost of managing such diversified smallholdings significantly outweighs their value, thus prompting the banks to buy back these shares which ultimately eliminate these minor shareholders from their registry, providing a feasible method to reduce this cost.
Concerning Bank of Ireland, during the most recent shareholders meeting, the issue surfaced to which the chairman Patrick Kennedy responded by stating it’s an area they would keep under consideration. However, he was quick to point out that AIB’s shareholder base was considerably more “fragmented”, referring more shareholders holding inconsequential stakes in the business.
It is evident that investors make their decisions, and it’s crucial for them to be aware that they are not guaranteed to gain profitable returns in the stock market. Unfortunately, they find themselves in a bind when their shares are effectively worth less than the selling cost, thus being metaphorically held captive.
Regarding AIB shares, a maximum lot of 20 shares is valued at €108. According to the bank, the standard number of shares that this particular group of investors holds is 4.36, amounting to just over €23.
On the other hand, the maximum limit for PTSB shares is 100, which is worth €170. The average amount of these shares held by this group is slightly less than five, rounding up to just under €8.50.
However, any value these holdings might offer is greatly diminished by annual broker account fees, transaction fees and stamp duty.
In the year preceding the financial crash, AIB shares were trading at a high of €23.08, while PTSB shares, then known as Irish Life & Permanent, traded at €21. Unfortunately, those share prices took a severe tumble, with an especially rough landing.
Prior to the April 2015 consolidation by PTSB, during which investors received just one share for every 100 previously held, shares were trading at approximately six cents. Similarly, ahead of AIB’s share consolidation in December of that year, where one new share was given for every 250 shares previously held, the shares were trading at a mere four cents.
Such drastic depreciations in share value spelt disaster for shareholders. For instance, one AIB share held today at approximately €5.40 equates to an original investment of almost €5,770, if purchased at their peak value before the crash. Similarly, one PTSB share at about €1.70 today represents an initial investment of €2,100, assuming purchase at their pre-consolidation rate of €21.
Chances of recouping these losses at this stage are virtually non-existent. Consequently, selling to make ends meet seems the logical course of action, particularly in absence of associated sale fees. The seemingly generous 5 per cent premium on the current trading price is essentially mere window-dressing, as it amounts to virtually nothing.
The only potential exception would be for a small group who may think waiting it out is worthwhile, given their shares were either purchased post-consolidation, or inherited. Even then, with such a minor holding, considering an exit is definitely a valuable option.
The peculiar commonality amongst odd lot offers is shareholders are automatically enrolled in the process. If one wishes to abstain, they must explicitly express their decision to do so by completing an opt out form available from each respective bank. This form should also have been disseminated to all qualifying shareholders, depending on the bank’s possession of accurate current addresses. The AIB form can be located via this link.
Two key aspects should be underlined. Primary, the offer is an all-in deal, meaning partial sales of shares is not an option. Secondary, waiting in anticipation for a more lucrative offer in any subsequent odd lot offer carries significant risk. Both banks have indicated that there are currently no pending plans for future odd lot offers. Considering the inherent costs of implementing these programs, it is imprudent to anticipate similar or superior offers will recur. Many regretful shareholders, including those from Verizon and Vodafone, have overlooked tax-free or low-cost selling options.
If you decide to participate – or do not act, which implies acceptance– AIB and PTSB will acquire your shares at €5.65 and €1.74 each respectively.
An idiosyncrasy of the banking offers is that it is limited to shareholders who hold certified investments– namely, a share certificate as opposed to electronic possession via a broker. This may be because banks perceive the improbability of sustaining a broker account solely for these shares – a financially unreasonable choice. Substantial holdings or significant accounts through brokers will likely avert the same quandary regarding sale costs.
The banks relay that shareholders are not obliged to submit their share certificate to accept the offer.
With regards to PTSB, the offer initiation was on September 6th, closing at midday on October 4th (the forthcoming Friday). The bank, or more accurately the company managing its share register, will distribute cheques to all participating shareholders “no later than October 21st” – a further incentive to ensure they are aware of your recent address.
The odd-lot offer set forth by AIB commenced on the 9th of September and will draw to an end on the 7th of October, with predictions indicating that the cheques will be issued on the 22nd of October.
Are taxes applicable to this situation? The profits made from selling shares invariably fall under the jurisdiction of capital gains tax regulations. According to these rules, an individual can make an annual profit of up to €1,270 from transactions before being subject to tax. Any profits surpassing this limit are taxed at 33 percent.
Considering the amounts in question, it is unlikely that owners of either share will be liable for capital gains tax, even if they have already used their capital gains tax-free allowance for the year.
All AIB shareholders would have initially purchased their shares at some cost. Although the shares have primarily been trading below their current rate for the past six years, even those purchased at the 2020 low point would incur less than €95 in gains through the odd-lot offer.
On the other side, PTSB shareholders face the fact that the €1.74 offer may represent a total return, as their original shares were obtained for free. However, even those who received the maximum allocation of 330 shares, later consolidated in 2015 to a slim 4 shares, are projected to receive under €7 from this offer.
Determining potential gains, albeit nominal, necessitates taking the original cost of the shares and subtracting that from the odd-lot offer price.
However, many are likely to see this offer leading to a tangible loss on their original investment. To calculate this loss, consider what you originally paid for the shares, factoring in the consolidation ratios including one AIB share correlating with 250 pre-consolidation shares. The equivalent reduction for PTSB is 1:100.
Having identified the initial cost and balanced it against the odd-lot offer return, the remaining sum will represent the capital loss. This amount can offset capital gains from the sale of other assets this year. Any unused capital losses will be carried forward until they are fully offset against future capital gains.
In one form or another, the proposals from the banks enable stockholders to at last put an end to an investment that has only resulted in monetary hardship.