Sixteen years after Ireland’s banks required bailouts that plunged the State into a financial crisis, lenders are finally getting around to dealing with one of the final loose ends from that era – the tens of thousands of shareholders who are left with holdings in the banks that are now pretty much worthless.
AIB and PTSB have both announced “odd lot” offers to mop up shares in the bank from people who would pay more in stockbroker fees to sell their shares than those shares are actually worth at current values.
I won’t say “looking after” as all of the shareholders eligible for the “odd lot” buyouts are very deep in the red on their investments. They invested back when bank shares were reliable sources of income via dividends and bank bosses were assuring us they knew what they were doing and that any downturn would be a soft landing.
And a key motivation for the banks is reducing their own costs.
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At PTSB, 128,000 of its 129,000 shareholders have fewer than 100 shares in the business – worth a maximum of around €170 at current prices. Over at AIB, the equivalent figure is 67,000 of the bank’s 75,000 shareholders who hold fewer than 20 shares apiece worth less than €110. In each case that means that around 90 per cent of shareholders holding a fraction of 1 per cent of the business.
The administration costs of dealing with this very wide group far exceeds the values of the smallholdings so it makes sense for the bank to look at cutting that cost – and buying back the shares and getting those smallholders off the share register is one way of doing it.
And what about Bank of Ireland, you may ask?
The issue came up at the bank’s most recent general meeting of shareholders. At the time, chairman Patrick Kennedy said it was something the bank would keep under review though he did stress that the share base at AIB was “much more fragmented” - i.e. a lot more shareholders holding negligible stakes in the business.
Of course, investors make their choices and everyone should know there is no guarantee of profit when they dabble in the stock market. But no one gains when shareholders are effectively held prisoner because their shares are worth less than the cost of selling them.
A holding of 20 AIB shares – the upper limit under its odd lot offer – is worth €108. The bank says the average holding among this group is 4.36 shares worth just over €23.
The figure for PTSB’s 100 share limit is €170. The average holding by that cohort at PTSB is just under five shares – or a holding of less than €8.50.
In any case, annual stockbroker account fees, transaction charges and stamp duty would more than eat up the value of those holdings.
In the year before the financial crash, shares in AIB had been trading as high as €23.08 while PTSB – then known as Irish Life & Permanent – had traded at €21.
Those share prices collapsed. Before PTSB’s April 2015 consolidation which saw investors get one share for every 100 they previously held, the shares had been trading at around six cent.
Over at AIB, in advance of its one new share for every 250 shares held consolidation in December of the same year, the shares had been trading at four cent.
For shareholders the losses are clearly catastrophic. Each share you hold today in AIB at around €5.40 represents an original investment of around €5,770 if you bought the shares at their pre-crash peak. Similarly, at around €1.70, your single share in PTSB represents an original investment of €2,100 if you bought back when they were €21 euro pre-consolidation.
And there is no chance of those losses being recovered at this point. So selling makes sense, especially of there are no charges associated with the sale. The 5 per cent premium to the current trading price is really just for the optics – 5 per cent of damn all is still damn all.
The only group who might consider holding on to their shares are those who have bought shares in either bank since the consolidation – or otherwise received them by way of transfer from a relative. Even then, if your holding is this small, getting out is certainly worth considering.
The offer
A feature both odd lot offers have in common is the default position that shareholders are opting in to the process. If you want to opt out, you need to state that wish expressly by filling out an opt out form that is available from each of the banks.
It should also have been sent out to every eligible shareholders – assuming the bank has your correct current address. If not you need to get in touch with them. The AIB form can be found here.
Two things are worth noting. First, this is an all-or-nothing offer. You cannot decide to sell some of the shares and hold on to others. Second, hanging around in the hope of a better offer in any second odd lot offer is a recklessly high risk game.
Both banks have made clear that, as of now, there are no plans for subsequent odd lot offers. These schemes cost money to put in place and it would be foolish to assume this offer, or a better one, will come around again. There are plenty of regretful shareholders in other companies, including Verizon and Vodafone, who failed to take advantage of free or low-cost sale options.
Assuming you decide to accept – or do nothing which is essentially the same thing – AIB will buy your shares back at €5.65 each while PTSB will pay €1.74.
One quirk of the offers by the two banks is that they apply only to those shareholders who hold their investment in certificated form – they have a share certificate rather than the shares being held electronically though a broker.
I can only assume that this is because the banks figure no one would have a broker account just for these shares – as it would make no sense financially. Holdings held through such accounts will likely be more significant or the shareholders will hold reasonably substantial holdings in other companies and will not suffer the same conundrum on sale costs.
Shareholders do not need to send in their share certificate in order to take up the offer, the banks say.
At PTSB, the offer opened on September 6th and will close at midday on October 4th (next Friday). The bank, or rather the company looking after its share register, will then send cheques out to all participating shareholders “not later than October 21st” – one more reason to make sure they have your current address.
AIB opened its odd-lot offer on September 9th and it will close on Monday October 7th, with the cheques being sent out on October 22nd, it expects.
Taxation
But what about tax?
Typically, the sale of shares will need to be assessed under capital gains tax rules. These allow a person to make a gain of up to €1,270 from transactions in any given tax year before becoming liable to tax. Tax on any gain in excess of the threshold is levied at 33 per cent.
Given the sums involved here, there is hardly any scenario under which holders of either of these shares will face a capital gains tax bill – even if they have already used up their tax-free capital gains tax allowance this year.
AIB shareholders will all have paid something for their shares. Shares in the bank have been trading below their current level for most of the past six years but even if bought at their 2020 nadir, the gain under the odd lot offer would be less than €95.
Over at PTSB, the issue is that the €1.74 on offer is, for many shareholders, all a gain given they received their original holdings free. But the maximum those shareholders got was 330 shares which was consolidated in 2015 to just four shares – worth under €7 under this offer.
To see if you have a gain, however derisory, you need to take the base cost of the shares – what you paid for them, if anything – and deduct that from the odd lot offer price.
For most, the bigger issue is that this odd lot offer will crystallise a significant loss on their investment. Again, to figure out how much, you need to sort out how much you paid for the shares originally – remembering that every one share you now hold in AIB was 250 shares that you originally acquired, assuming it happened before the share consolidation. The equivalent figure for PTSB is 100.
Once you figure out what you paid and offset the proceeds of the odd lot offer, the balance is your capital loss. You can use this to offset capital gains on the sale of any other assets this year. If you do not fully use up your capital loss with offsets this year, you carry it forward with you until such time as it is all used up.
One way or another, the banks’ offers allow shareholders to finally draw a line under an investment that has caused nothing but financial pain.
You can contact us at OnTheMoney@irishtimes.com with personal finance questions you would like to see us address. If you missed last week’s newsletter, you can read it here.
