Citigroup in reverse split, reinstates dividend

NEW YORK (CNNMoney) -- Citigroup on Monday announced a 1-for-10 reverse stock split of the company's common shares, and the bank will also reinstate its quarterly dividend.

Citi (C, Fortune 500) common stock will begin trading on a split-adjusted basis at the start of trading on the New York Stock Exchange on May 9. The quarterly dividend of 1 cent per share will be reinstated in the second quarter of 2011, following the reverse split.

"Citi is a fundamentally different company than it was three years ago," said Vikram Pandit, chief executive officer of Citigroup.

Pandit called the reverse split and the dividend "important steps as we anticipate returning capital to shareholders starting next year."

Citi shares closed 1.6% lower Monday, after jumping about 3% in premarket trade after the announcement.

The reverse stock split will bolster Citi's lagging stock price, which is down 4.9% year-to-date and closed Friday at $4.50.

Many large investors, including mutual funds and pension funds, tend to avoid stocks that trade below $5 a share. Some are even prohibited from investing in stocks trading below that level.

When a company completes a reverse split, it lowers the number of total shares outstanding and the stock price rises as a result. But the value of the company is unchanged.

For example, if a company has 100 million shares outstanding and a stock price of $5 and decides to split its shares at a 1 for 10 ratio, it would then have 10 million shares that each trade at $50.

In Citi's case, the number of outstanding shares will be reduced to approximately 2.9 billion from 29 billion.

No fractional shares will be issued in connection with the reverse stock split. Instead, all fractional shares will be aggregated and sold. Stockholders who would otherwise hold a fractional share of Citigroup common stock will receive a cash payment from the proceeds of the sale.

Citi's press release noted that in December, Treasury sold the last of the common shares it acquired in boosting Citi during the economic meltdown in 2008 and 2009. The government said it scored a $12 billion profit on its $45 billion Citi bailout.