BofA (BAC) Nears 'Penny Stock' Territory; Is Share Consolidation Imminent?

Because it worked out so well for Citigroup.

With Bank of America (NYSE: BAC) trading near 2.5-year lows, and threatening to break through the $5 "support" level, will CEO Brian Moynihan and Co. take a page from Citi's (NYSE: C) playbook and do a reverse split of the stock?

In May, Citi completed a reverse split, issuing 1 share for every 10 outstanding, effectively boosting shares out of "penny stock" range, basically anything that trades at or below $1 per share. Normally in the mid-$4 range, shares closed at $44.12 for the session. Trading volume also dropped by a factor of 10, down to about 60 million contracts on average.

But thinking that investors would see more value in the shares has proven to be a mistake for Citi; shares are 44 percent lower since the May split, only closing above $42.50 twice over the last half year.

BofA is in a similar situation. Shares at $5 start to bring up questions about management and the direction of the bank. Shares even hovered around $20 in 2010, and started 2011 at $15, meaning BofA has fallen over 66 percent for the year, erasing about $100 billion of market cap.

Based on Citi's performance, BofA is best to just stay the course for now, else it might end up back in "penny stock" territory, and investors won't be nearly as complacent as they are now. Moynihan probably will want to wait until Basel III implementation to see how things shake out, but with the first capital requirements expected to be met in 2013, he might not have a bank left to follow the rules.

Shares of BofA are 3.5 percent lower Monday.