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Story updated with analyst comments.



) --



announced a 1-for-10 reverse stock split of its common stock that will be effective on May 6, 2011, according to a company statement

The reverse stock split will reduce the number of outstanding shares of Citigroup common stock from 29 billion to approximately 2.9 billion.

Separately, Citi plans to reinstate a quarterly dividend of a penny per common share in the second quarter of 2011, following the reverse stock split.

"The reverse stock split and intention to reinstate a dividend are important steps as we anticipate returning capital to shareholders starting next year," said Citigroup CEO Vikram Pandit in a press release.

"I am not surprised by the Citigroup announcement," said

FIG Partners

analyst Christopher Marinac. "The rule of thumb would be that a bank of this stature would never due a stock split, but those rules flew out the window with the recession."

Marinac believes that shareholders should not see much impact from the split. The split makes sense for Citigroup because it attracts institutional investors. Many brokerage houses and institutions have a policy against investing in stocks less than $5, he explains.

Credit Suisse


analyst Moshe Orenbuch agrees. "The reverse split does not change theunderlying fundamentals but does perhaps make shares more attractive to a certain subset of investors," he said in a note.

Rochdale Securities

analyst Richard Bove said the reverse stock split is not the right choice because it will eventually destroy value to Citigroup's stock by chasing away retail investors, which have been the main buyers. Although he understands why Citigroup is doing the split and is still recommending the stock.

"The reverse split is being done for two reasons. First, by reducing the number of shares outstanding, the cost of paying the dividend is meaningfully less because the $0.01 per share quarterly dividend will be paid on a base of 3 billion shares not 30 billion shares," Bove said. "Second, an investor who wants to invest $300 million in the stock will now pay far less in commissions.

Rosenblatt Securities said in a note that the reverse stock split could have negative implications on U.S. equity since it is one of the most actively traded stocks, meaning there would be less trading when the price increases. An analysis by the firm estimates that five percent of the total equity volume could be impacted by the reverse split.

"We believe that a C reverse split stock would blend elements of both the AIG and BAC experiences. Looking at the reverse split of AIG, it's clear that the huge increase in share price and proportionate decrease in the number of shares available to trade contributed to the 76 percent decline in average daily volume post-split," the note by Rosenblatt said.

Citigroup is one of several banks that have announced

share sales


dividend repayments

since Friday when the

Federal Reserve

announced the results of its second stress tests.

--Written by Maria Woehr in New York.

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