AIB shares have left many shareholders perplexed, especially considering a recent announcement suggesting that 20 new shares are equivalent to 5,000 old ones. In the time preceding the financial calamity, AIB was said to have close to one billion shares valued at an estimated €25 billion. Its current valuation stands at approximately €12.5 billion, which is almost half of its previous value, rather than 1/250th as would be expected.
This value discrepancy served as an unwanted reminder for AIB shareholders, many of whom are still recuperating from the losses induced by the financial collapse. It was a sobering indication that their investment hasn’t recovered its former glory.
The primary issue revolves around the inaccurate comparison of data. Prior to the 2008 financial meltdown, AIB was indeed holding approximately one billion shares, with around 879.9 million shares as per their annual reports.
However, the bank’s maximum market capitalisation was reached slightly earlier in 2007. It is debatable whether the capitalisation truly reached €25 billion – a brief examination of the bank’s history vaguely points towards a €21 billion trading figure in 2006.
Regardless of these varying figures, the current situation remains largely unaffected. Today, AIB currently trades with a market capitalisation hovering around €12.5 billion, with mild improvements pushing its recent valuation up to €12.95 billion as observed last Friday.
However, it’s not simply about comparing the current market cap to the peak value and determining the bank is worth 52% or 62% of its pre-crash worth. The equation also requires consideration of the approximately 523 billion shares issued staggered through the series of rescues from 2009 to 2014.
Retaining their 880 million shares, the initial shareholders of the bank found their 100 per cent ownership had been diluted down to a minuscule 0.2 per cent. This was a policy primarily designed to favour the government, the bank’s primary shareholder at that point. If the State had claimed full ownership of the bank, rather than limiting it to 99.8 per cent, the liabilities of the bank would have been reflected on the State’s books, causing havoc with the size of our national debt. This problem was cleverly side-stepped by allowing the bank’s original shareholders to keep a small stake. The accuracy of our national accounts is based on such decisions – maybe a daunting narrative for another time.
The situation was worsened as some overly hopeful investors were drawn to AIB as a penny stock and saw it as a good bet. They ignored multiple cautionary notes from the government highlighting that the share price did not accurately reflect the bank’s stock market value and was far too high.
In 2015, AIB opted to organise its stock register as managing over 523 billion shares was a significant task. Owing to the reckless share trading that was inflating the bank’s value, share consolidation seemed logical. By November 2015, the bank was deemed to be worth a whopping €36 billion, propelled by a rising share price of seven cent. This valuation was beyond that of global banking major, Deutsche Bank, and others.
The bank then decided to consolidate all shares at one new share for every 250 existing ones. Following this change, the 675 billion shares reduced drastically to 2.7 billion on December 21st that year when the newly consolidated shares went live.
Upon the announcement of consolidation, 250 shares valued at €17.50 reduced to just one share valued at €8.50 by the time trading closed on December 21st. Interestingly, before the financial crash, these 250 shares would have clocked up a hefty value of approximately €6,000 – €5,987.50 to be exact.
Since 2015, the experience of these distressed investors hasn’t greatly improved, with share prices plummeting to a low €5.04 on Monday. Shareholders who have up to 20 shares might have invested up to €120,000 if they acquired at the peak, with these shares presently valued at €100.80 in the market. AIB reports that the typical legacy shareholder, constituting 69,000 of the bank’s current 75,000 shareholders, merely owns 4.36 shares which are currently valued a little less than €22.
These investors are practically trapped. The expense of selling their shares via a stockbroker exceeds the actual value of their shares, furthering their financial wounds. Considering the share price trajectory in recent times, they are likely to have discarded any hopes of regaining notable ground anytime soon.
Purchasing their shares seems the logical course of action for both the bank and the shareholders. The only comfort? It seems legacy shareholders in competitor bank PTSB may be in for an even harsher ride with a similar “buyout” scheme under consideration there.