For some time now AIB has been running a standard information note with its results, trading updates and suchlike to the effect that its shares are overpriced.

On Tuesday, the bank reminded investors it is currently trading on a valuation multiple of about six times (excluding the 2009 preference shares held by the State) its net asset value (NAV) at June 30th this year.

“AIB continues to note that the median for comparable European banks is about one time NAV,” the bank added. In other words, AIB shares are overvalued. They closed down on the day by 4.5 per cent.

AIB's statement was in response to media reports of some blunt comments on Monday by Minister for Finance Michael Noonan about the bank's valuation.

“The value attributed to the shares in the stock market at the moment would put a nominal value of €55 billion on AIB. It’s not worth that,” he said.

“So the shares are overvalued but it’s because of the restructuring. So I am issuing a kind of a warning to investors. Wait until it’s restructured before you buy. If you buy now you will lose money.”

Fianna Fáil finance spokesman Michael McGrath joined the debate by calling on stockbrokers to bring to the attention of investors the "high-risk nature of any investment in the stock".

“The completion of a process of restructuring the company’s capital structure leaves small investors at the risk of further sharp losses,” he added.

“This point may be lost on non-professional investors who are considering purchasing the share at this point.”

The large stockbrokers have actually been warning about AIB’s inflated share price for some time. In October 2013 I wrote a front-page story about AIB being the most valuable bank in Europe, with a market capitalisation of €79 billion. That followed a conversation with a senior trader in one of the big brokers.

Gap between share price and reality

To put some context on this, AIB shares were trading on Tuesday at 0.085 cent a pop. The National Pensions Reserve Fund (NPRF), which manages the State’s holding in the bank, has it on its books at 0.019 cent a share. Granted, the NPRF valuation dates from the end of last December – AIB has since returned to profit and is generating capital again, but it nonetheless highlights the gap between the current share price and reality.

This all stems from AIB’s bailouts from the State. Following the crash, AIB (including EBS) received €20.8 billion in funds to save it from going bust.

This resulted in AIB issuing about 500 billion shares to the State, which holds a 99.8 per cent stake in the bank.

AIB has an extraordinary 523.4 billion ordinary shares in issue, which are listed on the junior ESM market in Dublin. But the free float – the shares available to trade each day – is just 0.2 per cent of its stock.

It is highly illiquid, making it potentially difficult for retail investors to close out their positions.

AIB also has €1.6 billion worth of CoCos and €3.5 billion of preference shares owned by the State. These all form the so-called "capital stack" to which AIB chief executive David Duffy keeps referring when asked about when the bank might return to the capital markets.

Duffy told the Oireachtas finance committee last week that the bank would hold discussions with the Department of Finance and the European Central Bank before Christmas to bring some clarity to the structure of its capital base.

When that work has been completed a plan will be formulated to bring in some external investment, which Noonan will then have to approve.

Goodbody Stockbrokers last week stated its view that about €2 billion of AIB’s €3.5 billion of preference shares would be converted into equity, facilitating a €1.5 billion sale to investors, probably next year. It said simplification of the capital structure should “rectify the share price anomaly”.

AIB is not worth €55 billion. That much is abundantly clear. The bank’s return to private ownership will probably take some years. When pressed by the Oireachtas committee last week, Duffy said it was his hope that the State would have its money back in full within 10 years.

The valuation of AIB’s stock will go down in the period ahead and investors would do well not to be caught on the wrong side of the equation.