The financial crisis sent many banks to their final resting place, and even big institutions like Citigroup (NYSE: C) came to the brink of disaster. For a brief period, the financial giant saw its stock trade below $1 per share, and even after many of its peers had fully recovered from the crisis, Citigroup did a 1-for-10 reverse split in 2011 to get its stock price back into double digits. Now that other banks are starting to approach levels at which stock splits would be appropriate, some wonder whether Citigroup will ever get back to its former glory. Below, we'll look at Citigroup's past history of stock splits to see what the future might bring.
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Image source: Citigroup.
Citigroup stock splits in the past
Here are the dates and split ratios for the stock splits that Citigroup has done in the past:
Data source: Citigroup investor relations.
As you can see, Citigroup has a long history of stock splits, and most of them were the normal kind. Only the final 2011 move was a reverse split, and so those who owned 100 shares of Citigroup prior to its February 1993 split would now own 120 shares.
At first glance, the split ratios that Citigroup chose might look strange, but when you think about it, they essentially broke down what would have been 2-for-1 splits into two separate pieces. For instance, the February 1993 split took 100 shares and turned it into 150. The August 1993 split then took 150 shares and turned them into 200. Citigroup could have achieved the same thing by doing a single 2-for-1 split, but doing it this way had the effect of giving investors two pieces of news that were perceived positively rather than one.
The informal rule that Citigroup used throughout the 1990s seemed to center on the stock price reaching the $60 to $80 per share range. Early on, rises to the lower end of that range were adequate to spur a split. Later in the decade, larger price advances were necessary before Citigroup would make the move.
Why did Citigroup stop doing splits?
After 2000, several things conspired to keep Citigroup from needing to split its shares. First, the company's dividend payments contributed to total return while holding down share prices. In addition, the spinoff of the Travelers insurance unit in 2002 also pushed the share price down slightly.
Yet even before the financial crisis, many criticized Citigroup's management. On one hand, Citigroup wasn't able to produce the record results that some of its investment banking peers were able to reap from strong markets in the mid-2000s. Yet the bank also didn't manage to do as well as companies that focused more on retail banking. An assessment that Citigroup was getting the worst of both worlds weighed on its overall results, and that showed up in the bank's stock price as well.
Then, of course, the financial crisis came and hit Citigroup especially hard. Bailouts followed, and the reverse split was the only thing that lifted the stock to current levels.
Will Citigroup ever do a stock split again?
At this point, Citigroup hasn't made enough progress to warrant a stock split. A share price of just $60 might have been enough for the bank to do a small split in the 1990s, but right now, investors want to see more evidence of sustainable growth. Efforts like tripling its dividend and repurchasing shares, like it did in mid-2016, could help, but Citigroup will also have to make fundamental business improvements to compete more effectively with its big bank peers.
Unless that happens, Citigroup investors shouldn't expect a stock split. With so much baggage and with competitors trading at far higher share prices, Citigroup instead needs to focus on being a more important player in the retail and investment banking world in 2017 and beyond.
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