What is a reverse 20-for-1 stock split?

What is a reverse 20-for-1 stock split?

  • Postwritten by DeleteMeBitch
  • on July 1, 2009
"AIG made a reverse 20-for-1 stock split, designed to restore investor interest after its shares had dipped under $1.
The result? AIG shares finished down 22%, closing at $18.08 compared with Tuesday's implied close of $23.20"

Does this mean I really made more than 15 grand today? O.o
It went from 1 dollar to 18 dollars from yesterday to today... o.O
  • Postreplied by TnTrader
  • on July 3, 2009
AIG reduced the number of shares outstanding by exchanging 1 new share for every twenty you owned. You gained nothing in the exchange and actually lost 22% in the deal. Investors do not like reverse splits. It is almost always a bad sign. In the case of AIG, they lied as to why they reversed. They could not remain on an exchange with a share price below a dollar. They had no choice but to R/S. Had they not done so, they would have been delisted and kicked down to the OTCBB or pinksheets. A death knell for most companies.

I suggest you check the number of authorized shares after the split and before. If they did not reduce the authorized share amount by the same ratio as the outstanding they could choose to dilute what you have left by offering more shares for sale. This is common practice amongst R/S companies.