CIT got its latest rave Tuesday, from BTIG analyst Mark Palmer, who sees it as "quite likely that CIT shares will appreciate in the coming months in anticipation of both the potential capital return and the likely demonstration of the company's earnings power in 2013 given its vastly improved funding model." Shares rose 1.1% Tuesday and are up nearly 11% since July 26.
In order to return capital to shareholders, CIT will need approval from the Fed, and Palmer cited optimism from CIT CEO John Thain on the lender's July 30 second quarter earnings call as an indication that approval may be close.
"We continue to wait for a response from the Fed. I certainly expect to get one before the end of the year, and hopefully much sooner than that. I think we will continue, as we've said before, to include some form of capital return in our 2013 filings with the Fed," Thain said on the call.However, he who asks the Fed does not always receive, as both Citigroup (C) and Bank of America (BAC) have demonstrated in the past. Both companies were turned down by the Fed when they asked for permission to return capital to shareholders on a timetable the regulator thought too aggressive. Thain, whose $1 million expense report for office redecorations at Merrill Lynch in 2008 is likely still fresh in the minds of regulators, is not in the best position to be setting their timetables for them. Sellside analysts who follow CIT Group may not remember those earlier Fed rejections, since none of them cover Citigroup or Bank of America. Someone who surely does is Fairholme Capital Management portfolio manager Bruce Berkowitz, who owns Bank of America and CIT, and sold out of Citigroup at the start of the year. Fairholme dumped some 4.47 million CIT Group shares in the second quarter, cutting its stake to a still-sizeable 14.06 million shares. Berkowitz stated in his mid-2012 shareholder letter that redemptions have forced his funds to raise liquidity. Regardless, betting on regulators to give a blessing to John Thain could prove dangerous. -- Written by Dan Freed in New York. Follow this writer on Twitter.
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