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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (29350)12/20/2007 11:40:49 PM
From: Spekulatius  Read Replies (2) | Respond to of 72293
I sold my CIT recently as I simply lost confidence (probably at the worst possible time). Here is my reasoning:

CIT has pledged 7.2B$ in mortgages for 5.1B$ in cash. this is a non recourse deal which means that the worst case scenario is that CIT keeps the cash it has already but looses all economic will loose all mortgage assets. this of course would mean that CIT will have to write off another 2.1B$ in equity.

Besides that CIT still holds 2.5B$ in mortgage receivable. I suspect that those are lower quality than the ones mentioned in the pool above. I think we have quite a bit of additional writeoffs for those mortgage assets ahead of us. My best guess is 2B$. This would reduce CIT book value/share by roughly 10$/share. After that they would have an 78B$ balance sheet with only 4.5B$ in equity, which looks undercapitalized. So very likely they will turn around and find an rich Uncle in the far east who kicks back the lost 2B$ (a 30% dilution for current owners) just like UBS, ETFC, MS or C did to replace the lost capital and keep a decent rating.

Not a very enticing scenario and it will not be pretty for current equity holders but i think it's fairly reasonable based on what we see unfolding at UBS and MS recently.

To: Paul Senior who wrote (29350)12/21/2007 5:39:15 AM
From: Madharry  Read Replies (1) | Respond to of 72293
i wonder if you owned shares in finova way back. i just spent a few minutes reading the thread on that one and it was pretty scary. the company which was a large finance company started to spiral downward in 2000. the ceo / founder resigned at the stock price got cut in half following the bankruptcy of one of its large borrowers. at that time according to the thread there were still 17 buy recs on the stock. the stock kept tumbling as value players stepped in and bought and added as the stock dropped below book value, Insider purchases ensued, the stock kept dropping as they announced the hiring of investment bankers to pursue strategic alternatives. the stock kept dropping as buffet bought some distressed bonds. stock kept dropping as it was announced that luk was going to buy a piece of the company. Ultimately the company filed for bankruptcy. Im not saying this will happen to CIT, but it certainly makes me wonder whether anyone really knows whats going on sometimes.