CIT Preview: Delinquencies on the Rise?

CIT Group (CIT - commentary - Cramer's Take) is scheduled to report second-quarter 2008 results and conduct its quarterly conference call before the market opens on Thursday.

The commercial finance company is expected to lose $3.40 per share on net revenue of $587.2 million. In the year-ago quarter, CIT earned $1.28 on net revenue of $801.7 million.

In March, CIT was having liquidity problems as it was unable to raise money in the commercial paper markets and had to draw down emergency bank lines of credit. As a result, shares of CIT fell precipitously and speculation ran rampant that the company would seek a partner, would put itself up for sale or could face bankruptcy.

Since then, the company has sold its home-lending business to Lone Star Funds for $1.5 billion in cash and the assumption of $4.4 billion in debt and liabilities. The deal was announced and completed after the second quarter had ended. The company also announced an agreement to sell its manufactured housing portfolio.

This week, CIT declared its quarterly dividend of 10 cents. Earlier this year, the company lowered its quarterly dividend to 10 cents from 25 cents.

General Electric (GE - commentary - Cramer's Take), which runs one of the largest commercial finance portfolios, reported its earnings last Friday. As I reported, in that earnings call, "Commercial finance revenue rose 14%, and segment profit rose 7%. Originations were strong. Real estate profits rose 2%, while Capital Solutions profits rose 9%. The assert quality was deemed to be stable."

The quality of the CIT portfolio is not as strong at is GE's portfolio, furthermore, CIT has a much higher cost of financing. We should expect CIT to announce rising delinquencies and non-performing assets when the company reports.

---

At the time of publication, Rothbort had no positions in the stocks mentioned, 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.