December 20, 2011 | In: Financial
Bank of America (BAC) Reverse Split Soon?
After my accurate prediction of the IRE reverse split back in July (3 months before the actual reverse split), I am now pondering, which stock is next on the reverse split list. And then I thought, hmmm, Bank of America is technically becoming more and more of a penny stock, and I’m not sure if Brian Moynihan will be very fond of the idea of BAC becoming a penny stock under his leadership… So, in short, I believe that BAC is going to have a reverse split, at least 1:10 (10 shares pre-split will be equal to 1 share after split) most likely next year.
Other reasons that make me think that BAC will do a reverse split:
- Citigroup, a very comparable bank, already did a 1:10 reverse split earlier this year, so, BAC will not make a bold move by doing so. It’s been done before by a very similar institution.
- BAC is set to go even lower (much lower) in 2012 on the European crisis. It won’t make sense not to make a reverse split.
- There is no need to have 10 billion shares at $5 a piece when you can only have $1 billion at $50 a piece.
But, as we already know, reverse splits are not that great and are signs of bad stocks. If you don’t believe me, just look at any stock that did a reverse split in the past few years: AIG, AIB, IRE, C, etc… One of them (AIB) no longer exists, and the others are slowly returning to their pre-split price (IRE before the split was $0.8, and now it’s $4, it’s not that far from that $0.8 again).
In my opinion, a reverse split is as if the company is saying, we don’t expect our stock to return to the good old times, so, let’s just fake it, and do a reverse split, and make it look like it’s worth more than it’s actually is. I have warned before and I’m warning again, bank stocks are absolutely terrible and should be avoided in 2012 (haven’t we learned our lessons already?). And, out of all bank stocks, BAC is probably the worst one to invest in. It’s down 61% this years alone (vs 45% for C). So, as soon as BAC experiences a reverse split, then rest assured you will never, ever see that $20 level again (pre-split), at least not in your lifetime.
In my opinion, the question is not whether BAC will do a reverse split or not, the question is when will the reverse split take place (and, as I said before, it will most likely be next year).
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