Stock splits, which increase share count and reduce price, and reverse stock splits that do the opposite, do nothing to alter the value to shareholders. They are tools often used by management to send psychological signals to the market.
In Citigroup's case, in allowing the stock to trade above $40, the management was hoping to shed penny stock traders and attract legitimate long-term investors. It was also intended as a signal that the crisis was behind the bank.
The move, however, did not go down well with some retail investors who saw it as little more than
And given the stock's dismal performance in the two years since, those investors are still complaining.
On Tuesday the stock closed at $46.46 or what would have been $4.64 pre-reverse split, so that means shareholders have seen their stock move up by all of 12 cents in nearly two years.
"Reverse stock split has been and remains an emotional issue for shareholders," Corbat acknowledged at the meeting.
"This is not just an emotional issue," one shareholder told Corbat. "We are left with 10% of our holdings. We will never see those dividends for the remaining holdings. Not in my lifetime. Not in my children's and not in my grandchildren's."
But Corbat clarified that the dividend is set based on the bank's ability to pay dividends and is not based on its sharecount base. Once the board determines the amount that can be distributed as dividend and the Fed approves it, it is divided by the sharecount to arrive at the dividend per share. "Whether there is 1 share or 3 billion shares, your dividend is unaffected."
Essentially, shareholders are getting a lower dividend, not because of the lower sharecount, but because Citigroup has not been in a financially strong enough position to increase its dividend payout to what it once used to be.
O'Neill reiterated that shareholders had not lost their claim on the assets of the company as a result of the stock split. "In 2009, we made a very dilutive stock offering for which the company is very sorry. The split did not affect your economics, the issuance of shares did."
-- Written by Shanthi Bharatwaj in New York.