AIB: Noonan fails to honour predecessor’s commitment

Maybe I am doing him an injustice…He seems a good person and generally reliable..Maybe it is my own fault…I did not notice an official, timely and proper withdrawal of the State’s offer in relation to AIB’s capitalisation, perhaps. If so, I am happy to apologise to Mr. Noonan.

But, otherwise it seems to me that the present Minister of Finance is ignoring the commitment made by his late predecessor and referred to more than once on his Department’s website and, widely, elsewhere…to wit…the State will “provide all the capital necessary” to AIB at a share price of 50 cents. He now proposes to put in €5 bn. capital at ONE cent per share, 50 times less than shareholders were reasonably expecting! (Further, he asks, via the Board of AIB, that shareholders should agree to this act of mass financial suicide, which only the irrational shareholders could possibly agree to)

Remember, the share price was still hanging in there around €1.75 a year ago, until the State (NAMA)  decided to pay only half what the shareholders had been reasonably expecting for their assets transferred to that “bad bank”. This immediately wrecked AIB’s plan to survive as a non-majority State owned bank. It also led to a run on deposits, triggered by a further slump in international trust in the quality of Irish government guarantees and promises, quite understandably if you look at the NAMA story, a run which further added to AIB’s difficulties. Then the Min.Finance announced that the State itself will proceed, if necessary, with the full recapitalisation of the bank by the issuance of new shares at 50 cents each. (This had the effect of actually capping the price at 50 cents.) Now they’ve ignored this promise too- thereby adding further reason for international investors lack of confidence in any Irish sovereign promise.

The official incompetence and dishonesty in all of this would be laughable if it were not so serious for the financial welfare of tens of thousands of ordinary, mostly elderly shareholders who own the majority of AIB’s equity. Our government, led by officials and politicians who seem to know little about banking, is the only government in the world which managed to wreck its banks while pretending to “save” them following the Lehman liquidity disaster.  At the very least we can say that, compared to other governments with similar problems, we have been incredibly unsophisticated at managing a financial crisis. (How can these officials possibly present themselves as suitable managers of an international financial services centre?)

What should happen now?

1. Shareholders should vote No…although its probably too late because the vast majority will not and cannot attend the EGM next week – the bank is owned by c. 90,000 small retail investors- and the proxy system will see the Board’s recommendation accepted (- a Board which already shows allegiance to the new incoming State shareholders over the existing small investors)

2. Shareholders should form a Shareholders Action Group of some sort and start fighting back.  In the absence of another, I’m happy to gather initial names of interested participants. Just send an email to Brian@BrianODoherty.ie  and then check back here next week. (Also, right-click the title of this article and you’ll get an address which you can email to others)

3. As a start to repair the damage which the State has done to AIB shareholders, the Minister should give a bundle of share purchase warrants to existing shareholders, enabling them to repurchase the company over the next few years at a non-ripoff price.

4.  The Board should examine and report on the consequences of retrieving AIB’s assets from NAMA, which, in any case, should not have been transferred last year as the shareholders approval to go into the NAMA scheme was based on the understanding that it was part of a solution which would leave them with 50+% ownership, a plan scuttled by NAMA itself. The Board therefore had no authority to make these transfers.

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