Wednesday, September 30, 2009

CIT's fair value, closer nothing by the hour(CIT)

Earlier today, an analyst from Keefe Bruyette & Woods estimated book value of the common shares of CIT of $1.25-1.50 in the event that 30% of the debt is converted to equity. That's likely why the shares held up the way they did today, instead of plummeting to near zero. First of all this is only an estimate, as there is no concrete announcement as to how much debt will be exchanged.

This analyst is looking at a reduction in tangible equity from $2.9billion to about $511million. Look at CIT's balance sheet below - with net loans of $47billion, that $531 that common stockholders are fighting over is a rounding error. Stay away.

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