It is of little surprise that CIT Group, Inc. (NYSE: CIT) is seeing clobbered today.  The company has finally filed its pre-packaged Chapter 11 bankruptcy package and that has CIT shares down a sharp 63% at $0.26 on triple its average volume.  By now, the game is probably known by everyone that bankruptcy usually leaves shareholders of common stock out in the cold.  Should it be of any surprise that the “other troubled financial stocks” are seeing their shares head south?

It was just a week ago that I discussed the Fannie-Freddie equity conundrum.  Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) are down further.  After all, these two are in government conservatorship.  It is even easy to argue that these are just being kept alive so that Uncle Sam doesn’t have to include the obligations on the Fed’s balance sheet.  And how many investors in these companies really believe that they are holding anything more than a long-term warrant or LEAP option that is way out of the money?  Fannie Mae is down 7.4% at $1.00 and Freddie Mac is down almost 9% at $1.12, and neither are on active volume today.

And what about Ambac Financial Group, Inc. (NYSE: ABK)?  This is down a sharp 10% at $1.03 today.   What about Citigroup, Inc. (NYSE: C)?  This has recovered off the $3.81 lows seen early today, but this may be a psychological technical event for some price watchers and chart watchers. Maybe it was just stop and limit orders orders kicking in, but Citi shares only hit $4.00 last Wednesday.  But they had not broken under the $4.00 mark since August 17.

E*TRADE Financial Corporation (NASDAQ: ETFC) is down as well, even though the company has withdrawn its request for bailout money in an SEC Filing today (summary): The Office of Thrift Supervision recently requested that E*TRADE declare its intentions with respect to its application to participate in the Capital Purchase Program. In light of the funding received from recent capital raising activities… reduction in interest bearing indebtedness resulting from the recent debt exchange transactions… E*TRADE withdrew its application on October 30, 2009. Yet E*TRADE is down 7.5% at $1.35 today, which is the lowest level since the end of August.

American International Group, Inc. (NYSE: AIG) was one of the few of the junky financial stocks up on the day.  Shares are still up 1.7% at $34.20, but the AIG stock was up as high as $36.48 before heading back down today.

Last on the list is the company every mortgage borrower in America hated whether the insurance was needed or not and whether they lied about their ability to afford a mortgage or not.  PMI Group Inc. (NYSE: PMI) is down 16% at $2.03.

The money center banks and financially sound financial institutions are not getting clipped anywhere like the junkier financial stocks are today.  It appears as though investors are going to more safety.  Whether the markets have peaked for 2009 or whether it is just the junkier of the financial stocks have peaked for the near-term is something that we can debate later.  What is clear is that investors, traders, and speculators are using  the CIT bankruptcy as their catalyst to get out of the companies which are still highly questionable.

JON C. OGG
NOVEMBER 2, 2009

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