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Strategies & Market Trends : Value Investing

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To: rich evans who wrote (29683)	1/15/2008 6:16:40 PM
From: rich evans	Read Replies (1) of 78748

Well CIT did not go up as anticipated. They are issuing about 1.4mill shares to cover the fixed charge ratio of 1.1 which is required under their covenants. The Financial Accounting rules require Goodwill to be evaluated one a year in Q4 usually. Therefore CIT writedown of their Student Lending Goodwill was required since their ROIC was less then their WACC. So I don't think this was trying to increase losses. They get no tax benefits from writing off Goodwill. As to their huge credit provisions of $300mill, they get a tax benefit from that. It was large to take a bath at year end. Proof of this is that the CEO said they would increase their credit loss reserves at his presentation and slide show. Second, they arranged to sell stock to cover a deficient fixed charge coverage which since they have to cover fixed charges-interest and lease payments- by a 1.1 ratio. Last quarter they only did 1.05 according to 10Q and had to sell stock-8 mill. This quarter is the same. I don't think they needed to take these charges beyond their normal 70mill a quarter or so. Their provision for loss was .36% of finacial revenues last quarter. The CEO said he wanted to raise their reserves to .8% of financial revs which is historically more normal. This would be 144 mill not 300mill using the Q3 figures of 1800mill for financial revenues. So they took extra 160mill. The losses in their home mortgages are the extra probably but this is taking a bath that is not necessary probably. Their previous 6% reserves should have been enough since their losses have only been 10% total including the bad mortgages. The 6 % was used for only the good mortgages held for investment.. But we will get the benefits down the line from this overreserving. The charges against the mortgages held for sale are based on their results from their sale so they are accurate. The remained held for sale is basically manufactured housing paper and should be OK with the latest chargeoffs. CIT is taking a bath in their provision for loss and 2008 should now be clean and clear. Rich

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