Citigroup Announces a 1-for-10 Stock Split
Earlier today, Citigroup announced that they were going to do two things: reinstate their quarterly dividend and complete a 1-for-10 reverse stock split.
After Citigroup made their announcement this morning, my inbox was lit up with emails. Most of these emails were asking the following two questions: Why is Citigroup doing a reverse stock split, and is a reverse stock split a bad thing?
Let’s start with the first question.
Citigroup is doing a reverse stock split for one reason - they want to encourage buying from big investors such as pension funds, etc. Many of these "big" investors are not able to purchase stocks that trade for less than $5 (C is currently trading at $4.39). So, if C does a 1-for-10 stock split, all of a sudden their shares are trading at $43.90 instead of $4.39, and many pension and mutual funds can suddenly buy Citigroup.
Now - is a reverse stock split a bad thing?

So, the reverse stock split is a "good" thing in that it maintains the company's listing, but it’s a "bad" thing in that the company was doing so poorly that they needed to do a reverse split in order to maintain their listing.
I’ve followed reverse stock splits closely for over a decade now, and most stocks continue trading down after completing the split. I mean, it makes sense, as the reverse split does NOTHING to change the company's financial position, etc. If a company was struggling before a split, then they will still be struggling after the split.
This move certainly makes sense for Citigroup, but they are only doing it because their shares are trading at such a low level, which is never a good thing.
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