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Tuesday 12 December 2017

Q&A: Everything you need to know about AIB sell-off

Eircom executives Gerry O'Sullivan and Alfie Kane used a hot-air balloon to promote the sell-off of the State phone company in 1999 Photo: Photocall
Eircom executives Gerry O'Sullivan and Alfie Kane used a hot-air balloon to promote the sell-off of the State phone company in 1999 Photo: Photocall
Charlie Weston

Charlie Weston

When will the AIB flotation take place?

A final decision on the date of the multi-billion euro share offering has not been made, but it is likely the process will start this month or next. However, the Department of Finance has reserved the right to wait a bit longer if conditions do not suit.

The sale of existing shares in the bank, a so-called secondary offering, is set to be the biggest flotation on the Dublin and London stock markets this year. With between €2.5bn and €3bn to be raised, some analysts think it will also be the largest in Europe this year. About 25pc of the existing shares in the bank are being offered to institutional and retail investors in a dual listing on the Dublin and London stock markets.

How do I get my hands on some of the shares?

Ordinary people will be able to buy shares in the AIB sale, unlike in the case of the Permanent TSB flotation which was restricted to institutional investors, and existing shareholders. To participate, you need to have an account with a registered intermediary, more commonly known as stockbrokers. At the moment Davy Stockbrokers, Goodbody Stockbrokers and Investec, are expected to be involved in offering shares to retail investors. These brokers have offices in Dublin, Cork, Galway and Limerick. Goodbody has an office in Tralee as it is owned by Kerry-based Fexco. Others are expected to be added to the list. Stockbrokers are setting up call centres for queries.

Forget trying to get shares in a bank branch. You will not be able to buy shares though any of the 206 AIB branches, 20 business centres, or 71 EBS branches.

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, two proofs of address, such as utility bills and bank statements. Some stockbrokers are now set up to allow this to be done online.

How much will it cost to order AIB shares?

The share price has not been set yet. Maintenance fees for having an account with a stockbroker are typically at least €60 a year, plus commission charges and other fees. That is the bare minimum cost, and is for a basic execution-only service. In other words, you get no financial advice. In the case of the AIB share sale, the commission is being capped at 0.4pc of the value of the trade. But this commission will be paid to the intermediary by the State (and reimbursed by AIB). The objective is to treat a punter exactly as an institutional investor is treated, as they will not be charged commission to buy AIB shares.

Will the taxpayers get their money back after rescuing AIB?

The bank was initially rescued by the State, or we taxpayers, from 2009 on. EBS was folded into the banking group. Overall, the total cost of the various bail-outs was €20.8bn. The bank is 99.9pc owned by the Finance Minister, but it still has 90,000 other shareholders.

The minister is selling some of his shares, and expecting to generate up to €3bn. By next Tuesday the first dividend paid by the bank in nine years is due, a sum of €250m. So far, a total of €6.6bn has been repaid, and there will be other AIB share sales. The rest of the €21bn is expected to be returned to the State in the next five to 10 years.

Are staff and existing shareholders getting a discount on the share price?

There are no discounts for existing shareholders, staff or directors. Retail buyers who subscribe for shares will get them at the same price as institutional investors.

Will there be an incentive to hold on to the shares, as in the case of Eircom and Aer Lingus?

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 led to people holding shares when they might have been better off selling up earlier. There will no AIB share incentive.

How much will the advisers earn out of the flotation?

Advisers are set to hit the jackpot, but the cost for the AIB flotation is not as high as other big flotations. Advisers typically get 10pc of the value of the share sale. But in the case of the AIB share sale, the State is expected to have to pay out between €10m to €12m to advisers. Advisers include global investment banks Deutsche Bank, Bank of America Merrill Lynch, and Davy. Others involved include Goodbody, UBS, Golden Sachs, JP Morgan and Citi. Investec is a co-manager. Legal advice is coming from William Fry in Dublin and Allen & Overy in London. AIB will reimburse the cost to the State of these advisers. The overall cost of the flotation could rise to €40m.

Irish Independent

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