Citigroup discovered on Monday that reverse splits can be a somewhat painful exercise.

Its shares closed down 2.3 percent after a reverse 1-for-10 split that could be fruitful years from now, but tough going for some weeks. The higher stock price is more appealing to major fund investors but less attractive to screen jockeys seeking to trade the stock for quick gains.

Shares of the third-largest U.S. bank by assets ended at $44.16, on Monday, down $1.04 a share. The reverse split has the stock in double-digits for the first time since November 2008, when it first broke below $10, but the gambit has a mixed track record.

I doubt the stock is going to go back to the level it was pre-reverse split, but Citi has its work cut out for them, said Jason Weisberg, managing director at Seaport Securities Corp in New York.

The shares are trading in the mid-$40s for the first time since October 2007, when the bank started to recognize billions of dollars of losses on bad loans.

Often, companies will engineer a reverse split to keep from being delisted because their stock price has fallen through $1 a share. Many of those companies still don't survive.

For larger companies, the odds are better, though they often take a short-term hit.

Data from Birinyi Associates Inc shows Russell 1000 stocks that have enacted a reverse split since 1990 have suffered an average stock price decline of 1.1 percent 30 days after the split. Those who have done this in the last 10 years have lost nearly 5.5 percent in the first 30 days.

A number of big-cap names have been successful, including Priceline.com

. Its reverse split was in 2003 when the shares were less than $5. It now trades at about $530.

Larger companies often engineer a reverse split to boost their share price to attract institutions, some of which are prohibited from owning low-priced stocks. This often makes the shares less volatile as well.

You can call it the peer pressure factor -- all of their competitors are in the double digits while their stock was in the single digits, said Mohannad Aama, managing director at Beam Capital Management LLC in New York.

Over time they do increase institutional ownership -- that may have been the main driving factor.

Some continue to struggle post-split. Ciena is down about 28 percent since its September 2006 split.

Priceline.com was an exception, although the stock took a few years to take off. Shares of insurer American International Group Inc fell in 2009 after a 1-for-20 reverse split, although the stock has rebounded since.

Citigroup, whose shares hit a nadir of 97 cents in March 2009 in the wake of the financial crisis, may be another -- but it depends on company performance.

It could be the exception that proves our rule, said April Klein, a professor at New York University's Stern School of Business.

Klein co-wrote a 2008 study with Emory University's Goizueta Business School finance professor James Rosenfeld showing that those companies that conduct reverse splits often suffer poor market and operating performance for years post-split.

Most of the companies on our list were not 'too big to fail.' Also, there was no delisting threat here, Klein said.

With its shares at a higher price, Citi may be held to a higher standard.

Why would anybody own Citigroup when they can own JPMorgan for the same share price? said Mark Sebastian, chief operating officer of Option Pit Mentoring, an options education firm in Chicago.

JPMorgan is a much better company. Now there is actual price risk for the stock when it wasn't at $4.50.

The reverse split sapped demand among retail traders attracted by Citi's previously low price. More than 49 million shares traded in Citigroup on Monday, down sharply from the average above 412 million shares traded daily over the past 50 days.

The stock had become a favorite among traders providing liquidity by filling orders, thanks to the system of rebates offered by major U.S. exchanges, but the higher price reduces that appeal.

Citigroup shares fell on the day in March when the bank announced its reverse split, and industry observers had forecast they would fall again on Monday.

(Additional reporting by Jen Rogers in New York and Doris Frankel in Chicago; Editing by John Wallace, Kenneth Barry, James Dalgleish and Dan Grebler)

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