CIT Slights Some Important Metrics

For Rothbort's preview heading into the CIT Group conference call, please click here.

The conference call seemed like one big commercial for CIT Group (CIT - commentary - Cramer's Take), with the singing of lots of praise for the balance sheet management that the company has accomplished. That is all well and good, but, unlike General Electric (GE - commentary - Cramer's Take), which pores over volumes of numerical detail, CIT barely touched on some important metrics on the call.

Those metrics were included in the company's press release, and 60-day-plus delinquencies rose 1.70% for commercial credit and 8 basis points for consumer credit, the latter of which may be a bit muddled due to the company's exit from the student loan business. Since CIT is more focused on the commercial business, the 170-basis-point jump in delinquencies is of greater concern.

Although his background is more geared toward asset management rather than commercial finance, I think that Jeff Peek is an intelligent executive and excellent manager. As we have begun to see from companies like Wells Fargo (WFC - commentary - Cramer's Take) and JPMorgan Chase (JPM - commentary - Cramer's Take), perhaps the worst fears of the banking and financing businesses have been exaggerated. With some of the write-offs now in the rearview mirror, a stronger capital position, and concentration on stronger business sectors, CIT will not only survive but may show some dramatic improvement if the economy and financial markets do the same.

The company reported a second-quarter 2008 loss of $7.88 per share. This is broken down to a loss on discontinued operations of $8.00 per share, income from continuing operations of 18 cents per share and a 6 cent per share deduction for preferred stock dividends. Year-to-date, CIT has lost $1.00 from continuing operations.

CIT has continued to manage the size of its balance sheet. During the quarter, the managed commercial assets were shrunk down to $59 billion, which is in management's targeted range of $50 billion to $60 billion. CIT sold about $3 billion of loans, airplane leases and other assets -- all of which took place around book value, which management attributed to the high quality of CIT's portfolio. In addition to the asset sales, CIT raised $7 billion of capital in April and arranged $3 billion of long-term funding with Goldman Sachs (GS - commentary - Cramer's Take). The company is considering other business dispositions but would not comment on the status of the rail business disposition at this time.

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At the time of publication, Rothbort was long Goldman Sachs, although positions can change at any time.

Scott Rothbort has over 20 years of experience in the financial services industry. In 2002, Rothbort founded LakeView Asset Management, LLC, a registered investment advisor based in Millburn, N.J., which offers customized individually managed separate accounts, including proprietary long/short strategies to its high net worth clientele. He also is the founder and manager of the social networking educational Web site TheFinanceProfessor.com.

Immediately prior to that, Rothbort worked at Merrill Lynch for 10 years, where he was instrumental in building the global equity derivative business and managed the global equity swap business from its inception. Rothbort previously held international assignments in Tokyo, Hong Kong and London while working for Morgan Stanley and County NatWest Securities.

Rothbort holds an MBA in finance and international business from the Stern School of Business of New York University and a BS in economics and accounting from the Wharton School of Business of the University of Pennsylvania. He is a Term Professor of Finance and the Chief Market Strategist for the Stillman School of Business of Seton Hall University.

For more information about Scott Rothbort and LakeView Asset Management, LLC, visit the company's Web site at www.lakeviewasset.com. Scott appreciates your feedback; click here to send him an email.