Personal Finance

How does a Reverse Split of a Stock work? ie. CitiGroup?

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  • May 12th, 2011 2:07 am
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Deal Addict
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Mar 19, 2010
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Onterrible

How does a Reverse Split of a Stock work? ie. CitiGroup?

Hey guys,

I just checked Citi Group and I almost lost it... It's trading at $43.
It was at like $4 a week ago.

then I found out they reversed split?
What exactly does that mean? And is that legal?

What happens to your stocks if you bought a 100 units at their old bottom price of $4?
Does that mean you only get 50 units now worth the new price of $43?

Also what I find that is misleading is that when I look at their performance history, it doesn't show you their $4 price?
http://ca.finance.yahoo.com/echarts?s=C ... f;source=;

TIA
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9 replies
Member
Mar 17, 2011
256 posts
3 upvotes
Nothing changes at all. The process is legal and in this case they did a 10:1 reverse split. If you bought 100 units at $4, for a total of $400, you have now 10 shares with an adjusted purchase price of $40. The total is still $400.

The historical charts are also adjusted so that you can make direct comparisons. You will no longer see the $4 levels and you will see values over $500 in 2007.

They do this trick because apparently some mutual funds are not allowed to own stocks below $10.
Deal Fanatic
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Jul 27, 2004
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Its investings version of less is more.

I'm sure a reverse split is covered somewhere on the intraweb by someone by now. unless this is the first reverse stock split in history.
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Deal Addict
Mar 27, 2003
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Vancouver
If you had 100 shares, you now have 10 shares. Nothing in terms of valuation has changed from the reverse split. Not sure why you would think it's illegal.
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Apr 21, 2008
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dekay wrote: If you had 100 shares, you now have 10 shares. Nothing in terms of valuation has changed from the reverse split. Not sure why you would think it's illegal.

Exactly, valuations dont change at all!

The reason companies do stock splits or reverses is due to investor emotion and psychological factors.

If a stock "costs" 500 per share, well that's an "expensive" stock, so some people won't buy it, so they would split to make it more "affordable".

City did the opposite. At 4 dollars, some investors may perceive this to be a penny stock, or a weak stock, but at 40 dollars, it just sounds better already.
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Sep 26, 2007
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SC
Canuckerr wrote: Also what I find that is misleading is that when I look at their performance history, it doesn't show you their $4 price?
http://ca.finance.yahoo.com/echarts?s=C ... f;source=;

TIA

wouldn't that be more misleading if they did?
it wouldn't be comparable on a line chart because you'd just have like a 1000% increase
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Deal Addict
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Mar 19, 2010
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Onterrible
Ohhh I get it.

That makes complete sense
I have no idea what I was thinking. I don't know why I was over thinking this?

Thanks
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Member
Mar 17, 2011
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Jon Lai wrote: What happens if it means you get a fraction of a stock?
All the theoretical fractions are put together, sold at market value and then you receive your part.
Jr. Member
Nov 23, 2008
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toronto
i think i had 140 shares, when the price/share was around $45 or something. So now, I only own 14 shares, and the average cost per share is now at around $450/share. At this rate, I will never be able to even come close to breaking even. I think I'm just going to dump it.

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