Posted by: Lauren Young on March 20, 2009
The blogosphere is filled with opinions from folks who are either angry or applauding news that Citigroup (C) is considering a reverse stock split to boost its share price. Citigroup closed up slightly Friday at $2.62.
While you often see reverse splits from smaller companies in trouble with low share prices, “you rarely see it from companies that are the size of and that are important as Citi,” writes 24/7 Wall Street. Dave, who commented on the NYT’s DealBook blog, captures the sentiment of some frustrated retail investors who simply want to short Citigroup’s stock: “I hope it goes over $5 after the reverse split because my broker won’t let me short unless its over 5.”
As for my own post, Is Citi’s Reverse Stock Split a Smart Move?, the comments range from laudatory to angry to constructive. For example, reader Hugo suggests “demerging” (read: breaking up) up Citigroup into 100 separate business units. “Then let them sink or swim or be bought out. It’s likely there are highly profitable parts of Citi that could be worth more than $3 a share right now…” Hugo says.
Several readers also mentioned that a reverse split would help attract institutional investors who are unable to invest in a company when the stock falls below a certain level, such as $5.
I’ve done a considerable amount of digging on the threshold rules for institutional ownership in the past week. As far as I can tell, it is an urban myth that institutional owners must sell when a stock falls below a certain price, such as $5 or $20. (I checked this out with the largest mutual fund and pension funds.) If you know of a mutual fund firm or pension fund with specific threshold rules requiring funds to sell stocks when the price goes below a certain watermark, please tell me who they are.
And tell us what you think about Citigroup’s future, too. Is a reverse stock split the best way for Citi to increase its stock price? If not, what’s the right way to make this company more appealing to investors?