Citigroup Inc shares struggled on the first day after a 1-for-10 reverse stock split, an action that often fails to improve investors' opinion of a company.
Shares lost 2.7 percent to $43.95 on Monday.
The third-largest U.S. bank by assets, which needed $45 billion in U.S. government bailouts to survive the financial crisis, shrank its number of shares outstanding to about 2.9 billion with the split.
The split boosted Citigroup's share price out of the single-digit range in which it has remained since the financial crisis.
Companies often engineer a reverse split to boost their share price to attract institutions, some of whom are prohibited from owning low-priced stocks. Others do so to avoid being delisted by major stock exchanges.
However, investors see reverse splits as purely cosmetic and often do not reward companies that undertake them. A 2008 academic study found that companies that conduct reverse splits often suffer poor market and operating performance.
Volume has predictably declined and should dent overall exchange action as traders are now unable to take advantage of the exchange's rebate system as the previously tight bid-ask price spread has evaporated.
Exchanges provide a rebate to brokers to build liquidity in a stock. When Citigroup was trading in the $4 range and held by many investors, brokers were able to turn over the stock frequently and cash in on the rebate system.
Before Monday's split, the 50-day moving average in daily composite volume for Citi was nearly 425 million shares. Citi's volume was roughly 15 million shares in midmorning trading.
The shares are trading in the mid-$40s for the first time since October 2007 when the bank started to recognize billions of dollars of losses on bad loans.
Shares of insurer American International Group Inc, a recipient of $182 billion in federal bailouts, fell in 2009 after a 1-for-20 reverse split, although the stock has rebounded since.
Citigroup shares fell on the day in March when the bank announced its reverse split, and industry observers had forecast they would fall again on Monday.
Shares lost 2.7 percent to $43.95 on Monday.
The third-largest U.S. bank by assets, which needed $45 billion in U.S. government bailouts to survive the financial crisis, shrank its number of shares outstanding to about 2.9 billion with the split.
The split boosted Citigroup's share price out of the single-digit range in which it has remained since the financial crisis.
Companies often engineer a reverse split to boost their share price to attract institutions, some of whom are prohibited from owning low-priced stocks. Others do so to avoid being delisted by major stock exchanges.
However, investors see reverse splits as purely cosmetic and often do not reward companies that undertake them. A 2008 academic study found that companies that conduct reverse splits often suffer poor market and operating performance.
Volume has predictably declined and should dent overall exchange action as traders are now unable to take advantage of the exchange's rebate system as the previously tight bid-ask price spread has evaporated.
Exchanges provide a rebate to brokers to build liquidity in a stock. When Citigroup was trading in the $4 range and held by many investors, brokers were able to turn over the stock frequently and cash in on the rebate system.
Before Monday's split, the 50-day moving average in daily composite volume for Citi was nearly 425 million shares. Citi's volume was roughly 15 million shares in midmorning trading.
The shares are trading in the mid-$40s for the first time since October 2007 when the bank started to recognize billions of dollars of losses on bad loans.
Shares of insurer American International Group Inc, a recipient of $182 billion in federal bailouts, fell in 2009 after a 1-for-20 reverse split, although the stock has rebounded since.
