Citi’s Reverse Split

Thoughts on Citi’s Reverse Split:

The Wall Street Journal Citigroup Instantly Becomes a $40 Stock

Citigroup, the heaviest-traded U.S. stock that accounted for 6.8% of total U.S. stock trading volume last year, drastically shrunk its share count. The move instantly erased its single-digit stock price, which has been a persistent reminder of the trauma the bank suffered during the financial crisis. Through a reverse split, Citigroup was able to ax a huge number of shares outstanding by turning every 10 shares into a single share. Instead of trading for less than $5 a share, where Citigroup has languished despite improvements in profits and capital, the New York financial behemoth instantly became a $40 stock. Shares of the bank fell $1.04, or 2.3%, to $44.16…Broader studies also show a mixed record for reverse splits. James Rosenfeld, an associate professor of finance at Emory University’s business school in Atlanta, said he and April Klein of New York University’s business school had tracked the performance of 1,600 companies that did reverse stock splits over a three- year period. They underperformed the returns of comparable companies by 50 percentage points.

MarketBeat (WSJ Blog) – Don’t Blame Citigroup (Entirely) For Your Weak Volume Insecurities

With trading done for the day, it’s time to take a look at Citigroup’s much-vaunted one-for-10 reverse stock split. Did trading volumes shrivel up and die with the much-diluted presence of one of America’s highest-profile corporations — one that combines brand-name recognition with oceans of liquidity and one of the most bargain-basement-cheap price tags on the Street? The answer: Not really. Just to sum up, total NYSE composite volume today rolled in at just 3.03 billion shares — making it the second-slowest day so far in 2011, and well below this year’s daily average of 4.33 billion shares. The obvious blame for this goes to Citigroup, which after its decupling exercise is now only contributing tens of millions to NYSE composite volume, rather than the hundreds of millions it used to contribute in those halcyon pre-reverse-split days.

Comment:

The first story above points out that Citi accounted for 6.5% of NYSE composite volume last year.  As we pointed out on April 6, the stock’s reverse split would depress composite volume.  Our chart below shows yesterday’s volume (last red bar) was the lowest non-holiday volume since October 29, 2007.  If the technicians were worried about the bearish implications of a rally with declining volume, this will only grow larger considering Citi’s reverse split.

FYI – Our data, calculated by Bloomberg (MVOLNU <index>), shows NYSE composite volume was 2.93 billion yesterday.  The story above says NYSE composite volume was 3.03 billion shares.  We are not sure what data source they used which might lead to this slight discrepancy.

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