NEW YORK (CNNMoney) – Adding to Wall Street’s job woes, Morgan Stanley announced Thursday that it plans to cut 1,600 positions in the first quarter.
The layoffs will impact “all job levels,” said the company in a statement.

Thursday’s announcement marks a sharp turnaround for the firm, which has been one of the few major Wall Street banks that had not announced any layoffs this year.
With Morgan Stanley’s (MS, Fortune 500) planned cuts, the tally of job cuts announced by major investment banks in 2011 has now topped 80,000.
Citi plans 4,500 layoffs
Citigroup (C, Fortune 500) was the most recent bank to increase its planned cuts, announcing in early December that it intends to lay off 4,500 workers in early December.
Bank of America (BAC, Fortune 500) previously announced plans to reduce its workforce by 30,000. UBS (UBS) and Barclays (BCS) have each announced cuts of roughly 3,500 employees. And Goldman Sachs (GS, Fortune 500) has said it plans to eliminate 1,000 positions.
Morgan Stanley’s stock is down roughly 45% from the start of the year. Nearly every major bank has inked double digit drops in 2011, as investors fear the sector’s exposure to European sovereign bonds.

Yahoo – The long slog continues. The feature of the post-crisis economy has been a two-speed recovery. As a group, companies have done extremely well. Corporate profits and cash holdings are at record highs. The stock market has bounced back smartly since the lows of March 2009. But consumers haven’t done quite as well.
There are several reasons for the dichotomy. Corporations increasingly operate in the global economy, which means their fortunes aren’t tied to weak demand in the U.S. Consumers have been plagued by a weak job market and a horrific housing market. The difference in the ability of the two sectors to restructure (or shuck) debt and other financial obligations rapidly also plays a role.
When a crisis comes, companies quickly and coldly cut costs by idling factories and laying people off. Those who find their debts too overwhelming seek the protection of bankruptcy court. Once they file for Chapter 11 protection, huge companies like General Motors, or American Airlines, or Border’s, can rip up contracts, get rid of onerous leases, and ask bondholders and lenders to accept stock or reduced payments in exchange for the loans they’ve made. It’s a wholesale business. In a matter of weeks, tens or hundreds of millions of dollars in debt can be wiped out.
For consumers, it takes a lot longer to restructure debt. Families can’t fire their kids, or walk away from financial commitments so easily. For most families, the biggest fixed cost is generally housing. And while it’s possible to cut housing costs by defaulting, or refinancing, or downsizing, people still have to live somewhere. And in contrast to the system for processing corporate failure, the systems for processing foreclosure and personal bankruptcy move much more slowly. Personal debt restructuring is a retail business — done in increments of a few thousand, or tens of thousands of dollars.
But here’s the thing. Through the post-crisis period, American consumers and individuals have made — and are continuing to make — serious, sometimes heroic efforts to save, stay current on financial obligations, and pay down and restructure debt. The process of digging out is going slowly, but its happening. Or at least that’s the conclusion I drew from looking at the big report on credit released by the Federal Reserve Bank of New York yesterday. (The report is here, in PDF, and the data can be seen here by clicking on the Excel file on the right of this page.)
The headline number is a little messy, because the New York Fed only started including student loans in the data this year. Excluding students loans, total consumer debt stood at $10.791 trillion in the third quarter — the 12th straight quarter of decline. Consumer debt is off 10.5 percent from the peak of $12.06 trillion in the third quarter of 2008, and stands at its lowest level since the fourth quarter of 2006. In the most recent quarter, mortgage balances alone fell $114 billion, or 1.3 percent.
As we’ve discussed in other contexts, a big chunk of the decline in consumer credit is due to defaults and write-offs. But the Fed’s data shows that, combined with some pay down activity, the rash of foreclosures and defaults has lead to some significant changes over time. Compared to the second quarter of 2008, there were 10.2 million fewer mortgages open in the third quarter of 2011. The number of credit card accounts open fell from 492.19 million in the third quarter of 2008 to 383.27 million in the third quarter, a decline of 22 percent. “Balances on those cards were nearly 20% below their 2008Q4 high,” the New York Fed notes.
There are also signs in the data that American consumers have been doing a better job keeping up with their financial obligations. In the third quarter, the delinquency rate on all U.S. household debt rose a bit, to 10 percent from 9.8 percent on June 30. That’s bad news. But look through the numbers (on page eight of the data file) and you’ll see a slow improvement. Since bottoming in the fourth quarter of 2009 at 88.02 percent, the proportion of debt balances on which borrowers are current has been trending up — not dramatically, but up nonetheless.
In addition, other metrics testify to an American consumer that is slowly digging out. The New York Fed reported that the number of people who “had a foreclosure notation added to their credit reports” in the third quarter fell 7 percent from the second quarter. It’s hard to make too much of that, given the widespread dysfunction in the mortgage industry. But personal bankruptcy filings fell 18.8 percent from the third quarter of 2010. At 423,340 in the third quarter of 2011, it was the lowest quarterly total since the fourth quarter of 2008. Through the first three quarters, bankruptcy filings are off 17 percent from the first three quarters of 2010.
And so the slow-motion process continues. Instead of dramatic, rapid improvement in household balance sheets, we get slow, barely detectable ones. The numbers show a high level of stress, a fragile recovery, and plenty of pain to come for borrowers and lenders. But they also show that, over time, the excesses that built up in the last decade are slowly being worked out.
Daniel Gross is economics editor at Yahoo! Finance.
Follow him on Twitter @grossdm; email him at grossdaniel11@yahoo.com.

NEW YORK (CNNMoney) – Customers are dumping their banks in droves ahead of the nationwide “Move Your Money” and “Bank Transfer Day” movements this Saturday.
Given the recent spotlight on attempts — and ultimate failures — by some of the nation’s biggest banks to tack on new debit card fees, thousands of disgruntled consumers have already either left or pledged to leave their current bank for a community bank or credit union, which are known for having fewer and/or lower bank account fees.

At least 650,000 consumers have already joined credit unions since Sept. 29, the day Bank of America (BAC, Fortune 500) announced plans to impose its controversial $5 debit card fee, according to a nationwide survey of credit unions by the Credit Union National Association. That amounts to $4.5 billion in new savings accounts, CUNA said.
And while Bank of America and other banks have since backpedaled on imposing the fees, consumers are making it clear they are still fed up. More than four in every five credit unions said new customers cited days like “Bank Transfer Day” and new fees imposed by their banks as reasons for opening accounts.
I ditched my big bank!
“We must flee all those banks now!!! They will be adding hidden fees shortly! Drop the credit cards and go to credit unions to avoid this pitfall,” one CNNMoney reader wrote.
Meanwhile, the Independent Community Bankers of America said a poll of its 5,000 members conducted on Oct. 17 found that nearly 60% of community banks are gaining customers who are sick and tired of the big financial institutions. The association’s community bank locator has seen more than 5,000 inquiries in the last few weeks — an increase of nearly 500%.
By the end of this weekend, accounts at these credit unions and community banks could grow by tens of thousands more.
“Move Your Money Day” and “Bank Transfer Day” are backed by consumer groups like MoveOn.org and the Progressive Change Campaign Committee (PCCC), which are urging customers to switch banks by this Saturday — and turning to social media outlets like Facebook to do their convincing.

“Bank Transfer Day,” was started by a Facebook user who had heard about Bank of America’s $5 fee and posted an event on Facebook. So far, 75,061 Facebook users have said they will be attending, while 16,007 will “maybe” attend.
The PCCC said it has already received pledges from about 52,500 people to take their money out of major financial institutions by Saturday as part of the Move Your Money “banxodus,” with just under 22,000 consumers planning to remove their money from Bank of America specifically. About 6,900 customers told the PCCC they have already moved their money.
“They take your deposits and use them to buy politicians to de-regulate, give them immunity, interest-free loans and bailouts. Then they turn around and charge you fees to make them even richer,” said one “Move Your Money” flyer posted on a Facebook page dedicated to the initiative (which has 43,679 “likes”). “Take your money to a credit union or a community bank that will use your money in your community and not to pervert the rule of law and fill their own pockets.”
7 banks that are still awesome
Occupy Wall Street has formed a separate united front, called “Dump Your Bank Day,” which will take place on Tuesday, November 8.
Even though Bank of America and other banks canceled plans to introduce the new debit card fee — thanks to the mass uproar — the momentum is still going strong. Plus, experts in the banking industry predict more fees — and higher existing fees — will be popping up soon.
“The big banks will not be charging me a dime in additional fees. I moved my accounts to a great credit union last week,” a CNNMoney reader wrote. “Next week I get to tell Wells Fargo, to put it nicely, to take a hike.”

NEW YORK (AP) – Bank of America Corp. is selling half of its stake in China Construction Bank Corp., aiming to shore up its capital base.

The largest U.S. bank by assets is selling roughly 13.1 billion shares in the Chinese bank for $8.3 billion to a group of investors it did not name. The sale should generate an after-tax gain of $3.3 billion, and should close by the end of next month.

The Charlotte, North Carolina, bank will still own about 5 percent of China Construction Bank after the sale. It currently owns about 10 percent.

The sale is the bank’s latest move to increase its capital base to comply with new regulations. Finance Chief Bruce Thompson says the bank has raised about $5.8 billion in August.

CHARLOTTE, North Carolina (Reuters) – Bank of America Corp (NYSE:BAC – News) shares posted their steepest drop in 2-1/2 years on Tuesday as investors worried that the biggest U.S. bank might face big writeoffs.

The cost of insuring the bank’s debt against default spiked to record levels.

Bank of America shares closed 1.9 percent lower at $6.30 after falling as much as 6.4 percent during the day. The shares pared losses, and credit swaps largely retraced, as a broader stock market rally helped assuage investor fears about the economy.

In a blog post on Tuesday, former securities analyst Henry Blodget said the bank could have $100 billion to $200 billion of writeoffs and troubled assets to sort through. These potential write-offs could eat into a substantial portion of the bank’s $222 billion of book value.

“That’s why Bank of America’s stock is tanking. The owners of that stock will be the first folks to get hit if Bank of America has to raise more capital,” Blodget wrote on Business Insider, his collection of blogs.

Bank of America fired back at Blodget in a statement, calling his claims “exaggerated and unwarranted,” echoing language the U.S. Securities and Exchange Commission used in a 2003 complaint against Blodget. Blodget, a former Internet analyst at Merrill Lynch, was barred from the securities industry as part of a settlement with the SEC over alleged conflicts in his research.

Bank of America said the exposures that Blodget identified as the source of possible losses were inaccurate, with his sovereign exposure being off by a factor of 10.

The volley between Bank of America and Blodget was the latest example of analysts and investors disagreeing with the bank. Since June, a number of analysts have said Bank of America needs to boost its capital levels by about $50 billion to comply with new global standards. At least some of that extra capital could come from issuing stock, several analysts have said.

The bank itself says it can reach target capital levels by selling assets and earning more money. The bank has years to comply with the Basel III capital rules, which are to be phased in from 2013 through 2019.

Some analysts agree. Rochdale Securities analyst Dick Bove told television news outlets on Tuesday that the bank does not need to raise capital, whatever happens to its share price, and that Bank of America has ample liquidity.

Chief Executive Brian Moynihan told investors on a recent conference call that the bank did not view issuing more shares as an option, after having already diluted its shareholders so much during the financial crisis.

Regulators seem generally unconcerned as well. At a news conference on Tuesday, the Federal Deposit Insurance Corp’s acting chairman said he is comfortable with the overall amount of capital at U.S. banks.

“As a general matter I would say the answer to that is yes,” Acting Chairman Martin Gruenberg said in response to a question about the amount of capital banks are holding.

DOWNWARD SPIRAL

The drop in the bank’s shares on Tuesday was their fourth consecutive daily decline.

“It’s on a self-fulfilling downward spiral. I don’t know what’s going to make BofA go up,” said Mark Coffelt, head portfolio manager at Austin-based money manager Empiric Advisors.

The shares fell even as the KBW Bank Index (Philadelphia:^BKX – News) and the S&P 500 Index (^SPX – News) rose 3.3 percent and 3.1 percent, respectively.

Credit default swap insurance on the bank’s unsecured debt jumped as much as 65 basis points to 435 basis points, before retracing to 385 basis points, meaning it would cost $385,000 per year for five years to insure $10 million in bonds, according to Markit.

The level is just under the record level of 386 in March 2009, Markit data show.

Traders said weakness in credit derivatives helped fuel downward pressure on the shares, as markets feed off each other. Bank of America shares closed Tuesday at levels not seen since March 2009.

The key arteries of the financial system — the ability of banks and other institutions to borrow from one another on a short-term basis — continued to show rising stress on Tuesday, but not at levels associated with the panic of 2008.

The cost for a bank to borrow from another bank for three months in U.S. dollars, known as the London Interbank Offered Rate, continued to rise, hitting 0.31178 percent Tuesday morning from 0.30300 on Monday.

The pressures were most acute at European banks, which continued to pay more than other banks for short-term funding. Most European institutions paid more than the LIBOR fixing.

(Reporting by Joe Rauch; additional reporting by Lauren LaCapra, Jonathan Spicer, Karen Brettell and David Gaffen in New York and Dave Clarke in Washington; editing by John Wallace and Matthew Lewis)

The Washington Post – Capital One Financial announced Wednesday a $2.6 billion deal for the U.S. credit card portfolio of London-based HSBC Holdings, a move that would make the McLean firm the nation’s third-largest issuer of private label, or store branded, plastic.

The deal puts Capital One at the forefront of a niche market it only entered into at the start of this year. The company made its foray into the space in January by picking up the credit card portfolio of Canadian retail conglomerate Hudson’s Bay Co. That deal was followed up in April when J.P. Morgan Chase sold Kohl’s Department Stores’s card portfolio, handing over more than 20 million accounts and the right to issue cards to Kohl’s customers.

After the HSBC sale is finalized, Capital One would issue cards for such retailers as Saks Fifth Avenue, Neiman Marcus and Best Buy.

Analysts said the store-brand credit card business is rebounding, after a precipitous decline during the downturn. Delinquencies and charge-offs have slowed in the past year, while stricter standards on traditional cards have made store cards more appealing to consumers.

Private-label cards typically carry higher interest rates and lower credit lines than general-purpose plastic. Consumers with limited credit options tend to rely on these cards, and because they are unsecured there is always the looming risk of delinquencies and defaults.

“Capital One has proven to be pretty good credit managers through this cycle, and this is a way for them to continue to leverage their card expertise and get some loan growth,” said Donald Fandetti, an analyst at Citi Investment Research.

Issuers are drawn to the high fee income of store cards. Retailers that offer private-label cards tend to have a vast distribution network of stores, allowing issuers to hedge their bets against regional distress.

“You have a captive audience and a strong marketing system because the merchant is incentivized to push your product,” Sanjay Sakjrani, an analyst with Keefe Bruyette & Woods.

What’s more, the shrinking field of private label card issuers “might provide an opportunity for existing players to not only take market share, but share more of the risk with merchants,” Sakjrani said. “Some of the terms were pretty egregious for the issuers prior to the recession.”

Still, there are challenges for Capital One. Delving deeper into the card business against the backdrop of a foundering economy could prove risky, if consumers become more cautious in their spending, said Robert Hammer, head of the credit card consulting firm R.K. Hammer.

Capital One, he added, will have to “put together an attractive feature and benefit menu for cardholders to get them to use that card even more” and runs the risk of “cardholder defection.”

Hammer said the company should be able to manage those issues.

Capital One has been undergoing a larger tranformation than just getting into the private-label credit card business. The nation’s fourth-largest credit card issuer is in the process of turning itself into a mainstream consumer bank and announced a $9 billion deal to buy online bank ING Direct in June.

Capital One’s HSBC deal is slated to close in the second quarter of next year. The lender may raise up to $1.25 billion in equity to help finance the deal and has the option of paying HSBC $750 million in stock, at $39.23 per share.

Capital One anticipates that integration will cost $420 million, but expects to reduce the portfolio’s operating expenses by $350 million. The firm is projecting roughly 25 percent return on its investment in the new portfolio in 2013.

Bloomberg – Societe Generale (GLE) SA, France’s second-largest bank, denied “all market rumors” and asked the nation’s market watchdog for an investigation after speculation France’s creditworthiness was in doubt sent the shares tumbling.
The lender’s performance in July and early August shows it will be able to post “solid” results in the future, Paris- based Societe Generale said in a statement after the market closed yesterday. The bank asked France’s Autorite des Marches Financiers to open a probe into the origin of speculation that is “extremely harmful to the interests of its shareholders.”
Societe Generale led European bank stocks to the lowest since the aftermath of the credit crisis yesterday, tumbling 15 percent to 22.18 euros in Paris, the biggest drop since Oct. 27, 2008. France’s top credit rating was affirmed by all three major rating companies as speculation that Europe’s debt crisis would spread to the region’s second-biggest economy pushed the cost of insuring its government debt against default to a record.
“There is no indication whatsoever that France would waver in its determination to honor its obligations,” Dirk Hoffmann- Becking, an analyst at Sanford C. Bernstein Ltd. in London, said in a report to clients. “The resilience of the French banks against a freeze in the short-term funding market is very high,” he said, predicting that the sell-off in French banking shares “should be short-lived.”
European banks tumbled to the lowest since March 2009, when stocks fell to the weakest since the collapse of Lehman Brothers Holdings Inc. six months earlier. The Euro Stoxx Banks Index fell 8.9 percent to 109.87. BNP Paribas (BNP) SA, France’s largest bank, slid 9.5 percent to 35.61 euros and Credit Agricole SA (ACA) slumped 12 percent to 6.07 euros.
Watchdog ‘Vigilant’
France’s AMF said it’s watching to ensure “good functioning” of markets with an eye toward financial shares in particular.
“Like in each period of turbulence, the AMF is vigilant,” the regulator said in a statement read in a telephone interview.
Societe Generale said it has low exposure to peripheral European sovereign debt and has fulfilled “almost all” of its financing plan for 2011.
The company said Aug. 3 that it may miss its 2012 earnings target after second-quarter profit fell 31 percent because of a writedown on Greek government debt.
Societe Generale SA Chief Executive Officer Frederic Oudea defended the lender and said speculation that France’s creditworthiness is in doubt is “absolute rubbish.”
“I think the situation is really under control in France and in good hands,” Oudea said in an interview yesterday with CNBC. “In such a market, you know, which is nervous, it’s really easy to circulate absolutely unfounded information.”
ECB Intervention
The London interbank offered rate, or Libor, for borrowing in euros for three months was 1.5 percent yesterday, according to the British Bankers’ Association. Societe Generale reported a rate of 1.46 percent for the same period.
The European Central Bank was forced to buy Spanish and Italian bonds yesterday, according to four people with knowledge of the transactions. The amount of securities acquired by the central bank was smaller than in the previous two days, said one of the people, who asked not to be identified because the trades are confidential.
The extra yield investors demand to buy 10-year French debt rather than German bunds jumped to 90 basis points, even though both carry AAA grades from the major rating companies. That spread is almost triple the 2010 average of 33, and compares with 17 in the second half of the previous decade.
Francesco Meucci, a spokesman for Moody’s Investors Service, said in a telephone interview that the country’s Aaa grade is “stable,” echoing his counterparts at Standard & Poor’s and Fitch Ratings.
‘Fear Effect’
French bonds are the most costly AAA government securities to insure as investors raise bets that top-rated euro-region nations may be next in the firing line after the U.S. was downgraded one notch to AA+ by S&P on Aug. 5. Credit-default swaps on France trade at more than double the rate to protect German securities, CMA data show.
Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
BNP options prices rose to the highest level since at least 2005 and Societe Generale’s reached a two-year high.
The slide in French banking shares “seems to be prompted by concerns about the U.S. downgrade and the idea that France could be next, but that’s something Standard & Poor’s has denied,” said John Raymond, a banking analyst at CreditSights Inc. in London. “I don’t see any reason for what happened,” he said. “It seems to be a fear effect.”
To contact the reporter on this story: Jacqueline Simmons in Paris at jackiem@bloomberg.net
To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

NEW YORK (Dow Jones) – Citigroup Inc.’s (C) first-quarter profit fell 32% as the company struggled to make the transition from recovery to growth.

Its consumer-banking operation struggled with declining revenue in the U.S., consequences of the disaster in Japan, and reputation issues in some emerging markets. Investment-banking results dropped from the stellar results a year ago. While losses from delinquent borrowers continued to improve, allowing Citi to take money out of its loan-loss reserve, expenses rose as the bank’s legal costs increased and it continued to invest in new bankers.

All said, Citigroup’s $3 billion profit was slightly less than the reduction in its credit reserve. Revenue fell 22% from a year earlier, to $19.7 billion.

However, revenue rose 7% from the previous quarter, and Chief Financial Officer John Gerspach told reporters that the bank feels it is making progress in growing its business after years of decline and near-collapse.

Chief Executive Vikram Pandit, in a press release, said: “We are investing in our core businesses in Citicorp,” which holds the company’s retail and commercial banking and capital-markets businesses; “our capital strength improved; and the mix of revenues reflects the diversity of our businesses.”

Analysts said the earnings underlined Citi’s strengths and weaknesses. “Citi’s report was much like those of its universal bank peers,” J.P. Morgan Chase & Co. (JPM) and Bank of America Corp. (BAC) last week, “in that securities-related revenue was a positive surprise and the reserve release was better than expected,” said David M. Trone, head of U.S. banks and brokers research at JMP Securities. “Unlike its peers, Citi has much less exposure to the mortgage mess. On the negative side, like peers, there is no material momentum on the traditional banking side.”

The recovery from the financial crisis continues to overshadow the bank’s future. Rochdale Securities’ Richard Bove asked during the bank’s earnings call how Citi will grow if more than 60% of its income comes from lending, but loans are shrinking. Gerspach said such shrinking “will be a drain on our income for a while,” but he predicted loan demand from emerging markets will plug the drain eventually.

Citi reported a first-quarter profit of 10 cents a share, down from 15 cents a share a year earlier. Analysts polled by Thomson Reuters most recently forecast earnings of 9 cents a share on $20.55 billion in revenue.

Citi has exhibited renewed vigor since it returned to profitability last year. It has benefited from growth in the Latin American and Asia-Pacific regions, and those trends continued in the first quarter. Consumer loans grew more than 15% in both regions.

But Asia also caused headaches. The earthquake and tsunami in Japan cost the bank about $100 million in private-equity losses and reserves for mortgages unlikely to be paid back.

Meanwhile, staff in Indonesia and India were accused of hurting rather than helping customers, and Gerspach conceded that the company identified control issues that the bank is now addressing. He didn’t provide further details.

Pandit, addressing concerns about inflation and overheating economies in some emerging markets, told analysts Citi is in those markets “because something underlying in these economies is heading in the right direction.”

In a memorandum, Pandit told staff, “Pre-tax earnings in Citicorp were almost evenly split between the emerging and developed markets.”

In the U.S., Citi expects to take up to $50 million in one-time charges related to changes regulators are demanding of banks in the business of servicing mortgages to financially troubled borrowers, Gerspach said. The costs of servicing mortgages would rise up to $30 million a year, and Citi likely needs to hire around 500 staff to deal with regulatory-induced changes.

In capital markets, trading revenue improved from a bad fourth quarter, but advisory-and-underwriting revenue continued to decline in both its equity and fixed-income business, suggesting Citi has fallen behind its peers in those businesses.

Citi recategorized $12.7 billion of securities in order to sell them, which resulted in a $709 million pre-tax charge in Citi Holdings, the division that is a repository for businesses, loans, and securities the bank wants to dispose of. The securities were high risk, and Gerspach said “it was worth taking the hit.”

Citigroup shares were up 1.2% in recent trading at $4.47.

-By Matthias Rieker and Matt Jarzemsky, Dow Jones Newswires; 212-416-2471; matthias.rieker@dowjones.com

NEW YORK (CNNMoney) – Citigroup will soon escape penny stock status. Shares of the beleaguered bank have, for the most part, been stuck below the $5 level for the better part of two years.

But Citi (C, Fortune 500) announced Monday that it is planning a 1 for 10 reverse stock split, which means shares currently trading at about $4.50 a pop will fetch around $45 after the split takes effect.

Good news, right? Big money managers that usually shun stocks that cost less than an Abraham Lincoln could now be tempted to take a closer look at Citi. Or not.

Investors initially cheered Citi’s news Monday — it also reinstated its mighty penny-per-share dividend. But by Monday afternoon, the stock was down 2%. The simple fact of the matter is that the reverse split should do absolutely nothing to change Wall Street’s perceptions of the bank for the long-term.

Reverse splits reduce the number of shares outstanding and lift the stock price. But the value of the firm stays the same. A company with 1 billion shares at $5 a share doing a 1 for 10 split merely winds up having 100 million shares trading for $50 apiece. Market value is still $5 billion.

Reverse splits have often been used by desperate companies trying to pump their prices above $5 to attract more interest from mutual funds — and sucker retail investors into believing that a higher absolute stock price means a company is healthy.

They don’t often work. According to a 2008 study by professors at NYU’s Stern Business School and Emory’s Goizueta Business School in Atlanta, more than 1,600 companies that conducted reverse splits underperformed the broader market by about 50%, on average, in the three years after the split.

More potential bad news for Citi? April Klein, a professor of accounting at Stern and co-author of the study, said that companies trading below $5 a share before announcing a reverse split tended to do even worse.

Jennifer Tucker, an associate professor at the Warrington College of Business Administration at the University of Florida in Gainesville, said it’s a “myth” that big investment firms will suddenly find a company more attractive just because its stock price is higher following a split.

JPMorgan and Wells go dividend hiking
“It’s just a cosmetic change and is often a last resort for a company. Cash flows are usually still worse afterwards,” said Tucker, who worked on the NYU/Emory study as a student at Stern. “A reverse stock split often only delays the inevitable.”

Still, is the stigma tied to reverse splits starting to fade a bit? There have been some notable post-split success stories in the past few years.

Priceline (PCLN), for example, conducted a reverse split way back in 2003 and the stock has been on a monstrous tear since then, surging nearly 1,700%. Networking equipment firms Oplink Communications (OPLK) and JDS Uniphase (JDSU) have bounced back since splits a few years ago.

AIG (AIG, Fortune 500), which like Citi is still alive today thanks in large part to a massive government bailout, announced a reverse split in July 2009. Shares of the insurer have nearly doubled since then.

I must also sheepishly confess that my parent company Time Warner (TWX, Fortune 500) conducted a reverse split after it spun off Time Warner Cable (TWC, Fortune 500) in 2009. The stock has doubled in the past two years.

But these may be statistical anomalies. There are many more prominent examples of companies that continued to languish following reverse splits. Sun Microsystems struggled for years before Oracle (ORCL, Fortune 500) finally bailed it out by buying it. Ditto for Palm, which was acquired by HP (HPQ, Fortune 500) last year..

Tech companies Ciena (CIEN) and Conexant Systems (CNXT) were red hot in the late 1990s, tanked in 2000 and resorted to reverse splits. All three stocks still trade well below where they were prior to the split.

And even in some recent cases where reverse stock splits have led to decent gains, it’s hard to get too excited about them. E*Trade (ETFC) split last June and shares are up just 7% since then. By way of comparison, top rival TD Ameritrade (AMTD) and the S&P 500 are each up about 20%.

March Stock Mania: Ford tops Apple
Tech services firm Unisys (UIS, Fortune 500) reverse split in October 2009 and has gained more than 20% since then. But shares of healthier competitor Accenture (ACN) are up over 35%.

As with any investment, you have to look at each company on a case-by-case basis.

Jim Rosenfeld, associate professor of finance at Goizueta and another co-author on the reverse split study, said that companies that split in order to stay above the minimum price requirements for listing on the NYSE or Nasdaq tend to be the ones that face the most difficulty after the split. So that’s one possible bright spot for Citi since the bank was not in danger of being delisted.

And Tucker said she doesn’t fault companies with single-digit stock prices for trying a reverse split. If a stock is already facing oblivion, what’s the worst that can happen?

It is kind of like an episode of “House.” The cantankerous doctor and his team figure they can’t screw things up for a patient more than they already are. So they do just about everything.

“Reverse stock splits do not lead to any fundamental change in your business. But if you are really sick, you want to try every medicine you can,” she said.

But investors should probably steer clear of the reverse-splitters until there is evidence the medicine is working: i.e. real improvement in the company’s outlook lifting the stock price.

Everybody freeze. Everybody down on the ground. I tweeted on Thursday about how Kimberly-Clark was raising the price of its Huggies brand of diapers to meet rising commodity costs.

That immediately brought to mind an amusing movie line and I challenged followers to name the film. “I’ll be taking these Huggies and whatever cash you got.”

The movie is the classic (and bizarre) Coen brothers comedy “Raising Arizona” — back before Nicolas Cage stopped acting and just started screaming. The winner of the Buzz shout-out is Jack Bennett, aka @NJHounds. Congrats. And let the yodeling begin!

– The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks.

Associated Press – Bank of America is agreeing to pay $410 million to settle a lawsuit about overdraft fees.

A spokeswoman for the nation’s largest bank said Saturday that it is “pleased to reach a fair resolution” to the case. Spokeswoman Anne Pace said B of A also already has addressed many related customer concerns.

Customers pay overdraft fees when they spend more money than remains in their accounts. The fees can reach $35 apiece and have been a sore point with consumers.

Before federal law changed this summer, banks frequently charged overdraft fees on numerous transactions in a single day.

Similar lawsuits have been filed against other U.S. banks, including a California case where Wells Fargo has appealed a $203 million judgment.