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CIT Rally Unlikely to Save Treasury

For CIT to thrive long term, it needs to shift to a funding model that is based on gathering bank deposits, a much cheaper form of funding than issuing debt.

Many observers are skeptical about whether CIT will be able to gain the regulatory approvals needed to grow its bank. The FDIC refused to guarantee CIT's debt last year, as it did for General Electric (GE) and large banks like Citigroup (C), Bank of America (BAC) and Wells Fargo (WFC). It also issued a cease-and-desist order to CIT's Utah-based bank affiliate, preventing it from growing certain types of deposits, or from lending to the parent company.

Prensky, however, is bullish on CIT's prospects and has added to the common shares he received when CIT was reorganized. He believes regulators will not be able to keep CIT's cease-and-desist order in place indefinitely if the company continues to strengthen its balance sheet.

"It's a matter of when, not if," Prensky argues.

For taxpayers, however, the clock is ticking. Even if the 60 days turn out to be trading days, CIT shares would need to reach the mid-50s by early March for Treasury to recoup any of its investment.

-- Written by Dan Freed in New York.

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