CITIGROUP REVERSE
STOCK SPLIT:
DIDN'T THEY LEARN
ANY LESSONS FROM AIG?
A couple of months ago, I wrote about my dismay concerning the
proposed reverse stock split of AIG to a ratio of twenty to one. What
was on the table was a drastic diminishing of stockholder shares to one
twentieth of what they owned in order to prop up the price of the stock
by a multiple of twenty.
What happened, as I predicted, was a run to sell the stock. Almost
instantly the price, which had briefly been augmented twentyfold to $23
from $1.16, fell to $18 and within a week was down to around $9. I was
lambasted by some "in the know" who said that the stock was trading too
high even in the mid-one dollar range and would have fallen eventually
to a berth more suitable to its actual worth.
But it all seemed a bit coincidental and many pundits on CNBC and in the Wall Street Journal
echoed the point I was making that short sellers came on board and
drove the stock way, way down to a level that at the old reverse stock
split rate would have been 45 cents. Would such a dive happened
naturally, without news of something disastrous happening in the
company? I think not.
And interestingly, AIG's second quarter results have lately been
quite good and have contributed to a drastic rise in AIG's price,
closing at $27 on Friday -- which translates to about $1.35 under the
old system. Their new management team, led by retired Metropolitan Life
chief Bob Benmosche, on top of better business decisions made in recent
months, makes the future look quite a bit brighter. Would that those of
us who once had twenty times more stock might have slowly moved upward
at greater multiples of advancement.
Now, Citigroup has sent stockholders a proxy that, among other things,
proposes a reverse stock split in seven possible different ratios: 1:2,
1:5, 1:10, 1:15, 1:20, 1:25 and 1:30 to be later determined by the
Board of Directors. The difference between the AIG decision and this
one is that Citigroup is telling us that it might or might not do the
deed and is merely asking for our consent.
It specifically indicates the downside to such a split and "assures"
us that the Board of Directors will take into account the market at the
time, while cajoling us to vote for this catch-all reverse split
possibility because it will somehow increase the attractiveness of the
stock, in particular to institutional investors who don't like to buy
stock priced at a low rate.
The problem is that Citigroup has recently been doing fine and,
after stumbling a bit in the last couple of weeks, has regained its
footing and, after closing Friday at $3.85, looks well on its way to
getting above the five dollar base required for institutional
investing. Not to mention the initial horror story of AIG in the recent
background. Does anyone think that the minute Citigroup does a reverse
split that there isn't going to be a pounding down of the stock? Not to
mention financial reports on CNN's Anderson Cooper, NBC, CBS, ABC, Fox
News, MSNBC and tweets on Twitter expressing the almost universal
consideration that it is a faux move designed to trick everyone into
thinking the stock is more viable. A naked attempt that will be joked
about over morning coffee and Facebook accounts in the vein of "Who are
they kidding? They're clearly in trouble" sort of thing.
While it's encouraging that the financial experts have told us that
the reverse stock split is on the Citigroup backburner, such a vote
request at this time doesn't inspire confidence and is totally
unnecessary. For God's sake, let the company continue to mend and
slowly work its way back to financial health without methods that are
historically unhelpful to the stock value and ultimately to the
shareholders who bought the stock in good faith.
If you have not done so, I would urge Citigroup shareholders to read
the proxy statement carefully and vote the reverse stock split down.
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