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Banking, finance, and taxes

Citi Reverse Split & Dividend: Three-Card Monty (C)

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By Jon C. Ogg Updated Published
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Citigroup Inc. (NYSE: C) is announcing something that we are a bit surprised about this morning.  It is not quite a shell game, but it is a strategy that rarely works well for investors.  The recovering money-center bank has announced a 1-for-10 reverse stock split that will take effect after the close on May 6, 2011.  The company then also plans to reinstate a quarterly dividend of $0.01 per share in the second quarter after its split. 

Reverse splits can work sometimes.  Most investors and traders now do not generally view a reverse split other than anything as a game of three-card monty.

The company said that no fractional shares will be issued in connection with the reverse stock split as the transfer agent will aggregate all fractional shares as a result of the reverse stock split and those shares will be sold into the market.

If Friday’s $4.50 close holds, then shares would adjust to $45.00.  Unfortunately, a $0.01 per quarter or $0.04 per year dividend is going to generate such a small yield that investors will never even know they received a dividend.  The company is merely sending out a message that it can begin to pay back something to holders and that it will continue to look to pay holders more as conditions continue to normalize ahead.

Citi shares are with a positive market in the pre-market trading. Shares are up 2.4% at $4.61 in early indications.

JON C. OGG

Contact [email protected] for any questions or corrections.

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About the Author Jon C. Ogg →

Jon Ogg has been a financial news analyst since 1997. Mr. Ogg set up one of the first audio squawk box services for traders called TTN, which he sold in 2003. He has previously worked as a licensed broker to some of the top U.S. and E.U. financial institutions, managed capital, and has raised private capital at the seed and venture stage. He has lived in Copenhagen, Denmark, as well as New York and Chicago, and he now lives in Houston, Texas. Jon received a Bachelor of Business Administration in finance at University of Houston in 1992. www.247wallst.com.

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