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.
Citi's plan to reverse split it shares may get it back into a position where it can be held by institutions which have restrictions for owning stock that trades under $5. A 1-for-5 plan would move the price per share all the way up to $15, giving the bank a cushion if the bad news takes the value of the stock down again.
And, of course, that is the key. None of the fooling around with share count matters much if Citi posts large losses.
Douglas A. McIntyre is an editor a 24/7 Wall St.