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Strategies & Market Trends : Value Investing

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To: Spekulatius who wrote (27811)	8/19/2007 6:03:20 AM
From: RockyBalboa	Read Replies (2) of 78753

Hi Spec, Current leverage is smaller than in other lenders and financial companies. The 6.67% loss probability translating into about 500MM at risk need to be considered and if spreading to the remaining mortgage book, could put the company a bit stress and the leverage to an unacceptable level. Their quick ratio points to unsound financing practices namely to have a too high amount of short term liabilities. This is a hazard and the only visible risk at the current time. CP and repo dryup and the company is at stake. Remains the question about the quality of the non-mortgage part. While we might not be there yet, and currently the credit risks appear to be confined to the MBS sector, contagion into other ABS spheres can not be ruled out. Bloodthirsty as the market is, a stock with declining earnings having some mortgage exposure is prone to sudden declines and shakeouts. It is a good candidate for a shakeout in October when Institutions dump stocks which are down for the year. I would buy CIT but it should bottom out first. Maybe it trades sub-$20 for a brief time. finance.yahoo.com

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