NEST EGG COLUMN: Should I buy AIB shares in the upcoming flotation?

By Conor Martin 

Should I buy AIB shares in the upcoming flotation?

There is a lot of press coverage and media furore about this question as the Government prepares to eventually sell off 25% of the shares it owns in Allied Irish Banks PLC. The question of whether to take up this offer and buy into AIB shares is being hotly debated from all sides, particularly in relation to what the State coffers should do with the c. €3 billion that Michael Noonan and his crew will release through the sale. That’s outside of our control so I’m going to concentrate on the question from a personal investment viewpoint.

Before we concentrate on whether AIB shares now represent a worthwhile investment opportunity, let us go back a few steps in relation to each of our own personal financial circumstances and investment knowledge. For some odd reason, the minimum amount that retail investors must invest has been set at €10,000. The Central Bank has already classified professional investors as those who have the capacity to invest a minimum of €125,000 so I’m not sure where this new lower limit specifically in relation to the AIB sale has come from. The assumption is that this minimum amount is to protect retail investors to some degree. However, if the government was interested in protecting retail clients from volatility in the AIB share price, then AIB shares should have been delisted (taken off the stock exchange fully) after the financial crisis to prevent unexperienced investors from speculating in a company in repair mode that was impossible to value correctly by even the professional stock analysts.

So, in my opinion, the questions to ask yourself before you dive in and invest in AIB shares should include:

· Is your own personal financial situation suited to investing in shares/equites at all? In our experience of risk profiling every client we meet, hardly any are suitable for investing in direct shares yet many Irish people still do.

· If you deem yourself experienced enough to invest in shares, and capable of handling the associated risk, then do you want to invest in bank shares specifically?

· And, if you do believe that financial stocks are where your money should go then would you choose AIB over all the other global banks that you could invest in such as Santander, JP Morgan, Lloyds etc., most of which will pay you a decent dividend.

· Timing – just because the Irish government wishes to sell a 25% stake in AIB this summer, is this the right time for you to invest in Irish bank shares?

· Valuation – until the actual prospectus is released later this month, investors still have no idea what the price of these AIB shares will be offered at – so, effectively you will have no idea how many shares you will get for your €10,000 when you send your check in to your stockbroker. Imagine the scenario, where you walk in to your local auctioneer with a cheque for €200,000 and ask him to go off and buy you a house. The auctioneer takes your cheque and then explains that he will have no idea whether the price he must pay for that house will be that of 2006, 2010 or 2017 levels, but he will get you a house! Would you ever invest on those terms?

· Do you want to be invested in a company that is still 75% government owned, with salary caps in place which will exclude some of the best global talent from ever joining?

These are just some of the questions you should ask yourself before you get caught up in all the hype. I worked for AIB from 1996 to 2007 and was lucky enough to have worked alongside some of the smartest people I’ve met in my career, in what was then a very successful company. That

old AIB had stakes in other very successful global banks in the U.S., Singapore and Poland. These prize assets had to be sold when AIB was bailed out by our government. This new AIB that is being offered back to the public is a very different company, so please proceed with caution!

Conor Martin is Managing Director at Tara Financial Partners.