In its press release, Citi state that reverse stock split will be effective after the close of trading on May 6, 2011, and that Citi common stock will begin trading on a split adjusted basis on the New York Stock Exchange (NYSE) from May 9, 2011. Marking the occasion, Vikram Pandit, Chief Executive Officer of Citigroup was quoted in the press release as, "Citi is a fundamentally different company than it was three years ago". "The reverse stock split and intention to reinstate a dividend are important steps as we anticipate returning capital to shareholders starting next year" he said.
In simple words, for every 10 shares that an individual holds will be converted to one share. This does not change anything in terms of market capitalization or the overall health of the company. Rather with this move, the company will gain a momentary psychological gain as the value of a single share will rise by 10 times. For example, at present a single share of Citigroup costs $4.45, similarly 10 shares would cost $44.50; therefore, after reverse split, a single share of Citigroup will cost $44.50.
In 2007, Citigroup paid a divided of 54 cents per share, and it was the peak of dividend per share. Then towards the end of 2007, it had to record billions of dollars of loss on subprime mortgages. This affected the overall profit of the company and Citigroup started lowering the dividend payout. Finally in 2009 it eliminated the one-cent dividend as it received the third government rescue. In total, Citigroup was provided with $45 billion in bailout aid during the financial crisis. The U.S. government took a stake in the group, for bailing out the Citigroup.Then in December 2010, Citigroup got out of government ownership. Not only that, it also reported a full-year profit for 2010, after a gap of three years, the last time Citigroup had reported a full-year profit was in 2007.
With Citigroup announcing dividend payout, it is clearly trying to catch up to its glory days. Perhaps it would be better if this is achieved at a pace such that it can weather the storm the next time on its own, without government support.