When I heard recently about AIB’s plans to buy off their small shareholders I thought my problem might be resolved but it seems I’m even smaller than they have in mind.
I was once the proud owner of 100 AIB shares which cost me more than €2,200 and had great hopes of accruing wealth over time. Sadly that was not their destiny – a mighty storm did blow c.2008. The share consolidation that ensued reduced my 100 shares down to just one share.
It’s worth about €5 in theory but less than worthless in practice as it would cost me a lot more than €5 to sell it.
My question is: I would like to write off the loss and use it to offset a capital gain but I wonder if I’m allowed to that when, strictly speaking I still own it?
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Mr P.O’R.
This, in a nutshell, is the issue facing tens of thousands of shareholders in all sorts of companies. Investors in the banks, which were the goto destination for most dividend-seeking investors back in the day, are certainly front of the queue of misfortune when it comes to being left with uneconomic shareholdings in companies from which they once expected great things, but they are not alone.
The same can be said for a significant number of the original shareholders in that disastrous exercise in Irish shareholder democracy – the flotation of Telecom Éireann as it then was. Through reiterations to Eircom and then Eir, the company has become a textbook example of the perils of leveraged buyouts and shareholders enriching themselves at the cost of the companies they own. In Eir’s case, it became a watchword for poor customer service and return for those original shareholders.
And as a result of its several corporate restructurings, mergers, spin-off etc, shareholders who stuck with it now hold shares in Vodafone worth less than when they acquired them. Many also hold tiny stakes in US telco Verizon that are largely uneconomic to sell.
And it is not just poorly performing businesses. There are investors with tiny holdings in CRH grappling with how to offload their stock now that its main listing has moved to the US, leaving them dealing with a bureaucracy that they cannot understand. More of the same may happen going forward as others, including Flutter/Paddy Power, Smurfit Kappa and potentially even the likes of Kerry and Glanbia, follow a similar path.
You certainly hit the nail on the head when you talk of the difficulty in trying to establish your loss on this investment in order to offset other capital gains you may have made this year or will make any time in the future. As long as you hold the asset, you will not have crystallised the loss, which is what is required before it can be used to offset capital gains elsewhere.
There really are only three ways to crystallise a loss in these circumstances. Either you sell the shares or formally gift them – for instance, via transfer to a charity (if you can find any that is interested in them). The only other way is where Revenue formally acknowledges that the shares are worthless as has happened with several formerly listed companies in the past, but not with AIB.
For people in your position, the only sensible exit for many investors with minuscule holdings in these businesses is precisely the sort of low or in this case zero cost share sale offer that AIB and rival PTSB are currently putting the finishing touches too. Verizon and Vodafone are among others that, in the past, have offered similar arrangements for their legacy shareholders.
And you are far from alone. The bank estimates that almost 90 per cent of its current shareholders hold 20 or fewer shares in the business following that 250 for one post-crash bailout consolidation you referred to. Between them, they control a mere 0.2 per cent of the business.
That’s a lot of disgruntled shareholders looking for some way out of their nightmare investment in what was then one of Ireland’s high-flying banks. And they have been putting pressure on the bank for just this type of proposal to allow them exit.
AIB’s somewhat quaintly called “odd lot” proposal will be debated by shareholders at its annual general meeting on May 2nd. It proposes to offer to buy these uneconomic shareholdings back, with the incentive of a 5 per cent bonus to the bank’s current share price for those taking up the offer.
It will undoubtedly pass at the AGM as having this huge number of uneconomic holdings is expensive for the bank to manage and a constant reminder of a period the bank is very keen to move on from.
The good news for you is that you will not be excluded from the buyback. I’m not sure why you thought you would be.
The first line of the frequently asked questions document being sent to shareholders in relation to the odd lot offer states: “It is proposed that AIB’s Odd-lot Offer will give certain shareholders who own 20 or fewer AIB Group plc shares the opportunity to sell their shares back to the company at a 5 per cent premium to the market price without incurring any stock broking fees.”
The figure of 20 or fewer was chosen as, at the current share price, those holdings “would almost be entirely absorbed by costs if sold through a broker. It represents an obvious holding that is trapped or uneconomic”.
According to the bank, the average shareholding of these 90 per cent of its shareholders is just 4.36 shares. The “20 or fewer” covers everyone with anything up to that number of shares, including you with your solitary AIB share.
At the recent share price, of €4.952, you would be in line for a payment of around €5.20 including the 5 per cent premium the bank is offering under the deal. It remains to be seen what, if any rounding, is involved. That will allow you finally to crystallise a loss on your AIB investment that, on your figures, will come to around €2,194.
There are a couple of caveats. First, that AGM vote is simply giving the bank the power to make an “odd lot” offer; it isn’t an offer in itself. The bank says that such an offer if it happens – probably later in 2024 – will be subject to approval from the European Central Bank. This is most unlikely to be blocked but it is a step that must be undertaken and will delay any actual purchase of your share.
The bank also notes that, assuming it goes ahead, any “odd lot” offer will apply only to shareholders with registered addresses in Ireland or Britain. It cites securities law for its inability to extend any such offer further afield.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice
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