A Big Question About Citigroup's Infamous Reverse Split

Back in May, Citigroup did a 10-1 reverse stock split (so that it wouldn’t be a penny stock anymore), and the company has taken a lot of flack for it.

Supposedly these reverse splits are bad for shareholders, and people have connected the reverse stock split with the ugly performance in the company’s shares.

Now there’s some talk that the retail selling is over, and that it’s time to buy the stock.

But is there any evidence whatsoever that the reverse split actually was bad for the stock?

Check out the charts of Citigroup and Bank of America so far this year.

They’re basically identical, even though one didn’t split.


Photo: StockCharts.com

Here’s BofA:


Photo: StockCharts.com

The fact that Citigroup’s closest corporate analogue, Bofa, has fallen to a similar extent as Citigroup, certainly suggests something broader affecting the entire sector.

If you’re looking for a robust explanation of the bank stock collapse, look at the collapse of the underlying assets that they hold.

Check out the rapid, recent fall in the AA-rated tranches of subprime. just in recent weeks. Suddenly that reverse split idea doesn’t make much sense.


Photo: Markit

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