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Citigroup considers a reverse stock split

March 20, 2009|Associated Press

NEW YORK — Citigroup Inc. is considering a reverse stock split -- a move that wouldn't actually increase value for shareholders but would bump up the share price.

The split is not a done deal. Citi said Thursday it would file a proxy to regulators to authorize its board of directors to execute a reverse stock split.

But if the company decides to go through with the split, Citi's pummeled stock price could get a lift. Shares dropped to an all-time low below $1 a share this month on worries about the bank's viability.

"In this particular circumstance, it would actually help them a great amount," said Jack A. Ablin, chief investment officer at Harris Private Bank. "An issue with shares is marketing. . . . You don't want your price to be too low. Having a share price that low doesn't engender a heck of a lot of confidence."

He added that many mutual funds and institutional investors, including his bank, tended not to buy stocks trading at less than $7 a share.

As Citigroup reported five straight quarters of losses, its stock price fell 77% in 2008 and 54% this year. Its shares tripled over the last two weeks, though, after Chief Executive Vikram Pandit said the bank was profitable in January and February. Citigroup shares fell 48 cents to $2.60 on Thursday.

A split does come with costs, said Bill Rhodes, founder and chief investment strategist at Rhodes Analytics in Boston. Notably, small shareholders with odd numbers of shares have to be bought out.

Rhodes and Ablin also noted that raising Citigroup's stock price might give short-sellers more room to drive the stock down again.

A reverse stock split does not change the market value of a company's shares but reduces the number shares outstanding.

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