They are a perfect pair. Disgraced former Merrill Lynch CEO John Thain will join CIT (NYSE:CIT), the lending firm disgraced by a Chapter 11 filing, as its new chief. Thain’s partner in the Bank of America (NYSE:BAC) buyout of Merrill, Ken Lewis, faces civil fraud charges brought by New York State over the timing and nature of financial disclosure issues about the marriage. Thain may be called to testify at the trial and his own role in the transaction will be scrutinized again.

According to The Wall Street Journal, Thain will make a $500,000 base salary and receive $5.5 million in restricted stock, when valued at today’s share price. The paper reports that Thain made a presentation to the CIT board to help improve his chances of the job offer.

CIT ran into trouble a year ago as its investment in subprime mortgage paper and other derivatives damaged the value of its balance sheet so badly that it had to file for Chapter 11 in November of last year. The US had $2.3 billion in rescue funds in the financial firm, almost all which was lost. CIT was able to exit bankruptcy in December, but some bond holders and the holders of common stock were wiped out.

CIT has been in the business for decades of making small business loans. Its activities have been deemed essential to aiding a sector of the economy which has little access to capital and credit. That may be why the federal government was so anxious to salvage the firm.

CIT stands to benefit from the Obama programs to distribute money to small businesses as a way to jump-start hiring. It remains to be seen how much of the capital earmarked by the government for this purpose will run through CIT, but given its large customer base, it should be an important conduit for federal money, if that money is approved by Congress.

Thain is back where he thinks he belongs, at the head of a publically traded financial company. He still must deal with two important risks. The first is that he is actually free of the government’s investigation of the Merrill buyout. The other is whether CIT has the capital and reputation to become a viable lending entity again.

Douglas A. McIntyre

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