Taking Stock: John Thain -- what a pain

Dear Mr. Berko: My broker recommends I sell CIT Group shares that I bought at $49 in January of this year. He believes its revenues and earnings look weak, and he thinks the stock is dead in the water. Two research pieces my broker cites, as well as his firm's research, have a ''hold'' recommendation, which he says is a ''chicken's way to say 'sell.''' I hate taking a loss and would appreciate your advice.

WP, Springfield, Ill.

Dear WP: I agree. ''Hold'' recommendations are often issued by brokerages that don't want to say ''sell'' because negative opinions irritate management, which determines what brokerages can participate in its firm's investment banking fees. I thought everyone knew that!

Commercial Credit Investment, or CIT Group, opened its doors in 1908, when Ted Roosevelt was in the White House. In 1908, federal spending was $670 million, unemployment was at 8 percent, a first-class stamp cost 2 cents and the Chicago Cubs beat the Detroit Tigers (in five games) for their second consecutive title at Bennett Park in Detroit. And in the first inning of game 5, Orval Overall became the first and only World Series pitcher to strike out four batters in one inning. It was, indeed, a very good year.

Today CIT Group (CIT-$35.49) is a $3.7 billion revenue bank holding company that provides loans, leasing and debt collecting services; letters of credit; insurance; export and import financing; debt underwriting; and merger, acquisition and advisory services to middle-market businesses.

CIT used to be a prestigious, highly regarded and enormously profitable company. Trouble began brewing in 2006 and continued through 2009, so after taking a $3 billion loan from the Treasury (what a deal), CIT very cleverly filed for bankruptcy in late 2009.

John Thain, who was asked to vacate his chairmanship of the NYSE in 2008 and then his presidency of Merrill Lynch in 2009, was appointed CEO of CIT Group in 2010. CIT emerged from bankruptcy and gained some traction; its shares got a dead-cat bounce to trade in the mid-40s and now trade in the mid-30s.

One of CIT's problems, though, is John Thain, who has the personality and warmth of a cement wall. He is not a people person, is not well liked by his executive team and does not communicate well. And under Thain's aegis, revenues have fallen in the last four quarters, though earnings in 2010 were bolstered by the sale of CIT's Canadian, Australian and New Zealand divisions.

On the bright side, a consensus of 15 analysts believe CIT will earn $2.58 this year -- but those same fellows are not as sanguine about next year and suggest 2012 earnings will come in somewhere between a loss of 70 cents to a profit of $5.06.

Wow! That speaks volumes about Thain's credibility as CEO. But a low-level big shot I know at CIT suggests 2012 earnings should come in at $2.20 a share, while Credit Suisse suggests $2.58. And to my surprise, seven of those 15 analysts have a ''buy'' recommendation (including Reuters and Schwab) with a 12-month price projection of $46. However, Market Edge and Ned Davis Research have a ''sell'' recommendation on the stock.

And I also agree because CIT will be facing a weak economy in 2012 and 2013. And while loan demand is likely to be down, the banking industry will be more competitive/aggressive in bringing in new business. And I agree because, Thain's attractive resume aside, some observers doubt the man has the skill sets to take CIT through a rough business environment.

Thain's last years at Goldman Sachs, just before he took the NYSE position, were marred by some internal squabbles. His tenure at the Big Board was predictably short (but he did computerize the NYSE for high-frequency trading), and his pompous behavior at Merrill Lynch got him canned. Thain has been bounced around in the last few years and got his psyche whacked pretty hard each time. I hope he makes it at CIT, but I'm not comfortable holding the stock if he controls the reins. The last few things he's touched have turned to silt.

Your broker has given you good advice.

Please address your financial to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com. COPYRIGHT 2011 CREATORS.COM

Published: Thu, Nov 17, 2011

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