Should Investors Really Rethink of CIT as Buyout Bait?

CIT Group Inc. (NYSE: CIT) is recovering on Wednesday, but this is only a portion of the losses that shareholders endured on Tuesday after wider losses due to its debt financing. Today’s small bounce may in part be due to hopes that CIT would be acquired. Again, hopes. No rumor mongering here.

After results were deemed as disappointing, there was a note yesterday from Janney Montgomery Scott said CIT might have to pursue a sale of itself if it is not really able to generate an adequate return in the not too distant future.  As a reminder, John Thain just in the last few weeks vehemently denied that any talks were underway nor that any plan was there to sell the company.

A report in recent weeks from Stifel Nicolaus sort of got the rumor mill going, but what was so interesting was that the research report simply said it would be a great fit for Wells Fargo & Co. (NYSE: WFC). It should also be known that we have worries of our own here at 24/7 Wall St. that U.S. regulators would allow even the healthiest bank in America (Wells Fargo) to make an acquisition that grew one of the too big too fail banks. With Wells Fargo being so dominant in mortgages already, would the regulators really want the base of that many businesses dependent upon it for equipment and business financing too?

CIT has a $7.5 billion market value as of now and any real buyer would have to offer a decent premium to CIT holders. Our fear is that any hope and pondering about a CIT buyout is simply hope rather than anything of substance.

While refinancing costs hurt the results, it is very important to realize that CIT has massively lowered its cost of capital now. Shares lost almost 9% on Tuesday at $36.51 but the stock is up 2.3% at $37.35 so far on Wednesday.

JON C. OGG