Sunday 25 February 2018

Buying shares in the flotation is high-risk for retail investors

AIB’s headquarters in Dublin
AIB’s headquarters in Dublin
Charlie Weston

Charlie Weston

THERE is expected to be strong demand for AIB shares from retail investors when the trigger is pulled on the flotation. Here are four key things to note about the upcoming share sale.

* It will not be easy to buy AIB shares in the flotation.

Retail investors can apply to buy shares in the share sale. However, there is no guarantee that retail investors will get an allocation, as there is only expected to be between 10pc and 15pc of the shares being sold allocated to small investors.

To participate, you need to have an account with a registered intermediary, more commonly known as stockbrokers. Forget trying to get shares in a bank branch.

It is understood that intermediaries Campbell O'Connor, Cantor Fitzgerald, Davy, Goodbody, Investec and Merrion Private are set to be involved in offering shares to retail investors. You will need to meet strict conditions. There is a minimum investment value of €10,000. Only those who are clients of a registered intermediary can apply for shares.

Registering with a stockbroker could take weeks because of anti-money-laundering rules. You will need to act now if you do not have an account.

You will need to provide a copy of your passport or other identification, and two proofs of address. Some stockbrokers are now set up to allow this to be done online.

* Why the share price is surging on the Dublin Stock Market.

AIB's share price on the Dublin market has shot up in the past month. This is due to what London traders dismissively call "eejits" buying shares ahead of its flotation. These investors are likely to lose out on the value of shares they buy now. Just 0.1pc of the shares are traded on the Dublin Stock Market, something which distorts its value. The share price has gone from €5 to €9.75 in the past month, a rise of 95pc, before falling back by 30pc to €6 yesterday. There are just 2.6m shares in issue, out of a total of 26bn.

* Buying AIB shares in the flotation is risky.

Anyone considering buying a piece of AIB should think hard before signing up to have shares issued to them. We know to our cost in this country that, as well as rising, bank shares can fall to zero, as they did in the case of Anglo Irish Bank. Take advice before subscribing for shares, and do not borrow the money to invest.

AIB has been turned around, and is now very customer-focused under chief executive Bernard Byrne. It returned to profit in 2014, and has been profitable in 2015 and 2016. It made profits before tax of €1.7bn last year. It recently paid its first dividend in nine years. The bank has 2.6 million customers, making it the largest bank in the State. It has 206 AIB branches, 71 EBS branches and 20 business centres. AIB has the largest share of new mortgages issued, at 36pc. Although its non-performing loans are falling, they are still high at €8.6bn.

AIB is very much a play on the Irish economy. If the Irish economy dips, AIB's share price will suffer. Bank shares are not for the faint-hearted.

* There will be no incentive to hold on to the shares.

In the case of both Eircom (now Eir) and Aer Lingus, bonus shares were offered to those who held shares for a year or more. This meant people held shares when they might have been better off selling earlier. There will no AIB share-incentive arrangement.

Irish Independent

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