* Bank's share price to rise to mid-$40s on Monday
* Reverse split to shrink share count after bailouts
* Split seen as "quick fix," raises questions about growth
By Maria Aspan
NEW YORK, May 6 Citigroup Inc (C.N), which
needed $45 billion in U.S. government handouts to survive the
financial crisis, is about to paper over a visible remnant of
its near-failure: its single-digit share price.
Shares of Citigroup, the third-largest U.S. bank by
assets, will start trading on Monday at around $45 each for the
first time since October 2007, as a result of a 1-for-10
reverse split. The shares changed hands at $4.52 on Friday
The maneuver will let Citigroup start paying shareholders a
nominal dividend -- with its regulator's blessing.
The Federal Reserve in March allowed several large U.S.
banks to boost payouts but rejected some, including one by Bank
of America Corp (BAC.N). [ID:nN18142001]
Chief Executive Vikram Pandit wants to get the New
York-based bank's shares back in the hands of institutional
investors, who are sometimes prohibited from buying stocks
priced below $5 or $10 per share.
Yet while getting rid of a sub-$5 share price may look good
on its face, investors and industry experts are less than
impressed with the means by which Citigroup chose to do it.
"It's sort of a quick fix," said James Rosenfeld, a finance
professor at Emory University's Goizueta Business School in
Atlanta. "(It) tells me that they're not confident they can
grow themselves out of that $4 range."
Rosenfeld co-wrote a 2008 study with April Klein, a
professor at New York University's Stern School of Business,
concluding that companies that conduct reverse splits often
suffer poor market and operating performance.
Like many rivals, Citigroup is struggling to boost revenue.
A volatile trading environment has depressed investment banking
profit and an uncertain economy is shrinking consumer lending.
Those problems will not be solved on Monday.
GOING TO REHAB
Investors see reverse splits as purely cosmetic, and often
do not reward the companies that undertake them.
Shares of the insurer American International Group Inc
(AIG.N), a recipient of $182 billion of federal bailouts, fell
in 2009 after a 1-for-20 reverse split.
Citigroup's own shares fell on the March day the bank
announced its own reverse split, and Rosenfeld predicted they
would fall again on Monday. [ID:nN21282251]
Klein and Rosenfeld this month said Citigroup is slightly
different than most companies they studied, which often traded
near $1 per share and used reverse splits to avoid delistings.
Citigroup's share price fell as low as 97 cents in March
2009. It has ranged from $3.53 to $5.15 over the last year.
Shares outstanding ballooned during the financial crisis,
as the government rescued Citigroup three times and then
started selling off its resulting one-third common share stake.
The U.S. Treasury finished that process in December.
Now with 29 billion shares outstanding, the bank would be
unlikely to win regulatory approval for even a token dividend.
The reverse split would reduce the share count to 2.9
billion. Citigroup could then start paying a quarterly dividend
of 1 cent a share, equal to about $116 million a year. Absent a
reverse split, the minimum payout would be 10 times that sum.
Citigroup posted a $10.6 billion profit in 2010, its first
year in the black since 2007.
"They're trying to rehabilitate their image with the
investing public," said Peter Sorrentino, a portfolio manager
for Huntington Asset Advisors Inc in Cincinnati.
Citigroup is "a large, once-upon-a-time marquee name in
financial services," he added. "They may be a little bit more
sensitive to that (low share price), given that most of their
peers are not in that category."
CHANGING INVESTOR BASE
Because Citigroup is the most actively traded U.S. stock,
the reverse split could affect volume at exchanges operated by
NYSE Euronext NYX.N and Nasdaq OMX Group Inc (NDAQ.O).
It will also hurt day traders and retail investors, who
will now need more resources to trade a higher-priced stock.
Citigroup shares are still relatively cheap compared with
those of rivals, according to Timothy Ghriskey, co-founder of
Solaris Group, which oversees $2 billion and owns the bank's
The shares trade at about 0.95 times tangible book value,
slightly above the level for Bank of America. But other large
banks trade at an average of 1.51 times ratio, Ghriskey said.
"It's a bad thing for day traders, but a good thing for
long-term stockholders and therefore for the company," Ghriskey
said. "This will put it in stronger hands and at least somewhat
longer-term investor hands, and provide some stability."
(Editing by Steve Orlofsky)