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Wednesday 16 August 2017

'Eejits' told: Stop buying AIB shares or risk losing big when it floats

The current share price seems to indicate that the bank is capitalised at €23bn, more than double the recent valuation put on it by the State’s Strategic Investment Fund. Stock picture
The current share price seems to indicate that the bank is capitalised at €23bn, more than double the recent valuation put on it by the State’s Strategic Investment Fund. Stock picture
Charlie Weston

Charlie Weston

Small investors have been warned to stop buying shares in AIB ahead of its flotation.

Known as the "eejit trade", retail investors are piling into the bank's shares despite the fact that a tiny number of them are in issue.

The State owns 99.9pc of the bank, with those shares not yet traded.

Stockbrokers warned that the current share price does not reflect the value of the bank.

The Government is set to fire the starting gun on the flotation process in the next two weeks.

But ahead of that, the share price has shot up by 66pc in the last month.

The share price has gone from €5 to €8.30 in the last month, even though just 2.6 million shares are in issue out of a total of 26 billion.

Some investors mistakenly think they will gain an advantage by buying now. But most of those who bought in the last while are set to lose money, experts said.

The current share price seems to indicate that the bank is capitalised at €23bn, more than double the recent valuation put on it by the State's Strategic Investment Fund.

Banking analyst with Cantor Fitzgerald in Dublin Stephen Hall warned that the share price on flotation was unlikely to be as high as €8.30, the current Dublin Stock Market price.

"There is a tiny free float, as 99.9pc of the bank is owned by the Finance Minister," he said. "The current share price is certainly not a reflection of the underlying dynamics of the business of the bank."

He added that investors should not be trading in the shares at all at the moment.

Finance Minister Michael Noonan is set to announce in the next two weeks that he is formally starting the process of selling down 25pc of the shares owned by taxpayers.

Two weeks after that a pricing schedule is set to be issued, setting out the price range the shares will be sold at to investors in the flotation.

Mr Noonan was forced to warn small investors three years ago to stop buying AIB shares after they bought so many that the bank's market capitalisation jumped to €78bn. This was dubbed the "eejit trade" by London stockbrokers.

Members of the public will be able to apply to buy shares in next month's flotation, which is likely to be the largest in Europe this year.

Irish Independent

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