8 November 2015
By Bryan T. Smyth
bryan@TheCork.ie
Share price likely to fall sharply as part of capital re-organisation
Fianna Fáil Spokesperson on Finance Michael McGrath (from Carrigaline, Co Cork) has called on stockbrokers trading in AIB shares to bring to the attention of investors the high risk nature of purchasing the stock. He was speaking following the announcement that AIB is to begin the process of returning capital to the State, which will involve a share consolidation.
Deputy McGrath commented: “Many potential investors in AIB look at the very low nominal share price at which they now trade and see a potential for huge investment returns. Only a miniscule 0.2% of AIB shares are held by private investors with the rest of the shares held by the NTMA on behalf of the State. This concentration of ownership has resulted in a grossly inflated market capitalisation of close to €40bn. Even at its low nominal share price, AIB is trading at a level far above the valuation placed on it by the National Pension Reserve Fund. The completion of a process of restructuring the company’s capital structure leaves small investors at the risk of further sharp losses. This point may be lost on non-professional investors who are considering purchasing the share price at this point.
“Many stockbrokers operate on an execution only basis, simply providing a share trading service for investors. This serves many investors well as it reduces their trading costs. However, the situation in relation to AIB is such that their share price is so far out of line with the underlying value of the company, I believe there is an onus on stockbrokers to advise investors of this specific anomaly and allow them to adjust their investment plans accordingly. This can be done without placing any additional obligation on brokers to provide advisory services to clients who wish to trade on an execution only basis.
