CIT Earnings… Sins of Thy Bankrupt Father (CIT)

CIT Group, Inc. (NYSE: CIT) is out of bankruptcy, has John Thain as its new CEO, and is trying to get on with life in ‘the new normal’ in a sector where making money is going to be more of a privilege than a right for some time.  After the closing bell, the turnaround financier for America’s businesses was reported as “losing $1 billion.”  Did it lose $1 billion?  Yes.  The results exclude one-time benefits from the bankruptcy reorganization.  This was one of those instances where bad news could not avoid being bad news in almost any case.

The business lender said it earned $3.2 billion in the quarter if you lump in the reorganization benefit.  Its pre-tax loss from operation was $1 billion.  Remember the issues about having low rates that it can charge but having high borrowing costs?  Those issues were still present.  What matters here is not the past.  This is a case of a son inheriting the father’s debt… sins of thy father.

Charge-offs are not gone, bankruptcy reorganization or not. Those charge-offs hit were about 4.77% and came to $385 million.

CIT also took down a $4 million loss for the full year, while bad loan losses ate up its benefits from the reorganization under bankruptcy in December.  Those benefits were north of $10 billion.  The company took out more than $10 billion in its stated debt and the old bondholders received what became 200 million of the new float of the common stock.

Fair value of the new common equity was listed as $41.99 per share.  Just do not think you can collect it.  Companies losing money and reorganizing often trade at significant discounts to stated equity or book values.  Go ask a whole sloth of financial companies which are involved in insuring municipalities or mortgages.

Honestly, reporting about companies in, going into, or coming out of bankruptcy, looks a lot like broadcasting from the gates of hell and that is the case here.  But CIT did manage to have one of the fastest returns out of bankruptcy and returns back to a public stock that we have seen.  And if things continue on the path they are on and as long as the capital markets do not close off again, then CIT seems to still have a future.  How profitable that future will be is still nothing more than ‘work in progress.’

This is one of those reports that could not have been pretty no matter how you presented it.  But Wall Street knew that.  Shares closed down 1.4% at $36.29 today, yet the after hours trading saw a gain of 2.5% at $37.20.  Its post-bankruptcy trading range as far as the new stock is $24.83 to $37.88.

JON C. OGG