CIT Finds Rough Current Above the Waterline

A year after re-emerging as a public company, CIT(CIT Quote) might've just stuck its head above water long enough to be picked off.

The stock ended trading Tuesday at $24.23, up 5% from its $23 a share initial offering price last July 3. The gain caps a three-month streak in which the New Jersey-based commercial lender has rallied more than 43%, ending a tumultuous year during which its $4.9 billion IPO looked like one of Wall Street's biggest duds.

Yet it may be too soon for investors to declare smooth sailing. For one thing, CIT still faces a potential big headache with its large aircraft leasing business, a profitable operation whose counterparts have recently caused trouble for other firms. Others, meanwhile, wonder how much longer the relatively small company can expect to compete with much larger lenders.

CIAin't Kidding

With an estimated $4.4 billion in airline assets, CIT's aircraft portfolio looks ripe for a writedown given the recent wave of airline bankruptcies and near-bankruptcies. Morgan Stanley(MWD Quote) two weeks ago took a $287 million charge to write down the value of its much-smaller aircraft leasing portfolio.

"They have huge exposure to aircraft, which is very dicey,'' said Timothy Ghriskey, president of Ghriskey Capital, a Connecticut hedge fund. (The fund doesn't own any CIT shares, nor has it sold any short.)

Concerns about the health of the aircraft segment prompted the research firm GimmeCredit last week to say the price of CIT's bonds is at a heightened risk for depreciation. A decline in asset quality "may slow earnings growth,'' the firm warned.

Until the company offers more clarity on its airline portfolio, Ghriskey said CIT's stock looks "appropriately valued'' trading at a shade above its book value of $23.62 a share.

CIT officials couldn't be reached for comment. The company reports earnings July 24.