Citi-Split May Trigger Margin Calls

According to a market statement, Citigroup will have a reverse stock split effective after the close of trading on May 6, 2011, and Citigroup’s common stock will begin trading on a split adjusted basis on the New York Stock Exchange at the opening of trading on Monday morning. If you’re in the market you should check your mailbox.

If a corporate action materializes, the client accepts that FxPro reserves the right to make appropriate adjustments to the value and/or the size of a transaction and/or number of any related transactions.

FxPro Financial Services

Although I’m not trading, I receive many of the same alert that ordinary investors do. This morning I got a warning of a possible margin call from the online broker FxPro Financial Services.

The following statement was issued Friday afternoon through the usual market information channels:

Please note that Citigroup Inc. (NYSE: C) will have a reverse stock split which will be effective after the close of trading on May 6, 2011, and that Citigroup Inc. common stock will begin trading on a split adjusted basis on the New York Stock Exchange (NYSE) at the opening of trading on May 9, 2011. When the reverse stock split becomes effective, every (10) ten shares of issued and outstanding Citigroup common stock will be automatically combined into (1) one issued and outstanding share of common stock without any change in the par value per share.

The following small print message was also attached:

Note: A reverse stock split reduces the number of shares in the market and increases the share price proportionately. For example in a 1:10 reverse stock split the number of shares in the market is reduced by 10 times and stock price increases by 10 times (although the opening price after a reverse split may have a deviation from this price).

The result of a maneuver like this is a reduction in the number of a corporation’s shares outstanding that increases the par value of its stock, or its earnings per share.

The market value of the total number of shares (market capitalization) remains the same.

For example, a 1-for-2 reverse split means you get half as many shares, but at twice the price.

It’s usually a bad sign if a company is forced to reverse split – firms do it to make their stock look more valuable when, in fact, nothing has changed.

A company may also do a reverse split to avoid being delisted.

Thou, I can’t really imagine Citigroup being delisted on NYSE – that would really stir the pot, I guess…

A 17 percent plunge in the Citigroup share price last Friday triggered a five-minute trading pause.

It also triggered at debate about the three-week old curcit=braker system that’s been implemented.

Whether the drop in Citigroup’s market value was justified or not, didn’t seem to bother anyone…

Anyway -  this morning I received the following notice from the online broker FxPro:

FxPro Terms and Conditions (CORPORATE ACTIONS 8.1):

If a corporate action materializes, the client accepts that FxPro reserves the right to make appropriate adjustments to the value and/ or the size of a transaction and/ or number of any related transactions; any such adjustment aims in preserving the economic equivalent of the rights and obligations of both the client and the Firm immediately prior to a corporate action. It should be noted that these adjustments are conclusive and binding upon the client; the client will be informed accordingly by the Firm as soon as reasonably practicable.

Thank you for your collaboration.

Sincerely yours,
Dealing Desk,
FxPro Financial Services Ltd.

Well, it doesn’t matter much to me, but I guess if you’re in the market, either directly as an investor in Citigroup, or indirectly by EFT‘s, CFD’s or other derivatives, you should check your mailbox immediately to avoid any nasty surprises on Monday morning.

Related articles:

• Anticipating the Citigroup Reverse Stock Split, Trading Implications are Major and Many (C, AIG, NYX, BAC, WFC, JPM, RF, KEY, BPOP, IRE, AIB, NBG) (247wallst.com)
• Is Citi Worth $5.60? Or $56 Soon? (C, GS, BAC) (247wallst.com)
• Citigroup Reverse Split: Analysts React (blogs.wsj.com)
• Banner Corp approves reverse stock split (bizjournals.com)

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