Citigroup Rebounds to $5 a Share
Citigroup has hit a milestone.
After being left for dead, shares of the bailed-out global bank were trading near $5 a share Thursday, although they had eased just below that psychologically important level after jumping nearly 1.5 percent earlier in the session.
Citi's shares briefly hit $5 in intraday trading in April, but essentially have been nowhere close since falling from $34 after the bank nearly collapsed in the spring of that year. On March 5, the stock closed at $1.02.
Early last month, the U.S. Treasury sold off its last sharesof Citi stock, earning $12 billion for U.S. taxpayers. The government had stepped in to save Citi with a $45 million infusion in 2008 and 2009 during the height of the financial crisis.
"I think it’s a psychological issue, much more than a financial one, but we all have to admit that behavior finance plays a role," says Frederick Cannon, chief equity strategist at Keefe, Bruyette, & Woods.
The $5 level is important because "very few companies that trade below $5 survive in their current form," he says.
But, Cannon says, the reality is Citi could boost its stock up to $50 a share if it wanted to by doing a 10-for-1 reverse stock split. "I think they eventually likely will," he adds.
The brokerage has a neutral rating on Citi as analysts don't expect the bank will be in a position this year to deploy capital and start paying dividends again. Instead, KBW prefers JPMorgan ,Wells Fargo , and US Bancorp , Cannon says.
But Jaime Peters, senior equity analyst at Morningstar, says $5 is not that significant to Citi, especially since the bank's shares have been rising steadily since early December.
The $5 mark is an arbitrary level used by some institutions and brokerages for purchasing a stock. But "a lot of institutions who have that $5 rule can make exceptions, especially if they bought it at $50 and are still holding it at $5," Peters says.
"It is specifically the $10 mark that is a signal for health," Peter says.
Still, she adds, it's great the stock is gaining momentum, and says Morningstar views $6.50 a share as fair value for Citi. The firm, however, is neutral on the stock, giving it three stars, or essentially a "hold," rating, as Peters remains concerned with the bank's loan losses, put-back risks with mortgage-backed securities, and with its exposure to Citi Holdings.
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