Citi's reverse stock split plan gets a warm welcome

The market seems to like the idea that Citigroup (C) may do a reverse split of its shares and issue common stock in exchange for publicly held convertible and non-convertible preferred and trust preferred securities. That exchange should allow the big bank to cut back on its interest payments because most of the preferred has a yield for investors. Obviously, the pool of Citi shares may rise, causing some dilution.

Citi's shares have jumped on the news, up 22 percent at market open to $3.72, an indication that current shareholders would rather face an increase in common stock than the ongoing drain of the firm's cash as it pays dividends.