Reverse spilts are the tools of companies which cannot keep their share prices up through good management and sound operation. Most firms that resort to them want to keep their stocks above $1 to keep NYSE or Nasdaq listing or to trade above $5 to meet the investment standards of certain institutional investors.
Fannie Mae (FNM) is considering a reverse split so that it can stay on the NYSE. It trades at $.97 now and has been as low as $.30. A ten-to-one program would move shares close to $10 and would cut the float by 90%. But, it would not do one iota of good for shareholders.
According to the AP, "Last week, Fannie Mae reported that it received notice from the NYSE that its stock failed to satisfy price-related requirements, and may lose its listing on the exchange." The exchange will play along. It will continue to get listing fees from the company. But, who will be fooled? Fannie Mae is in the process of a creeping nationaliztion. The stock will continue its slide.
Fannie’s market cap is $1 billion on a good day. The government may as well buy-out those investors who are still in the shares and put them out of their misery.
Douglas A. McIntyre