Wall Street is a forgiving place. How else would you explain the stunning turnaround of former Merrill Lynch CEO John Thain and the once bankrupt
Former Merrill Lynch Chief Executive and current head of CIT Group John Thain.
Well, a healthy business helps too.
CIT took some $2 billion in TARP funds in 2009 then filed for bankruptcy months later after being denied a second bailout. The move wiped out shareholders.
Thain, a former Goldman Sachs exec and CEO of NYSE, was brought in February 2010 to clean up the mess shortly after an embarrassing exit from
Under Thain CIT has repaid or refinanced $31 billion in debt, shares have climbed 58%, the firm has returned to profitability and is repurchasing $200 million in shares in 2013. Its market cap is $10 billion.
You might recall Thain was in charge of Merrill when it was sold to Bank of America and then forced out after awarding big bonuses to executives despite his firm's massive losses. CIT, a commercial lender to small and middle market businesses, declared Chapter 11 bankruptcy amid the financial crisis when its loans soured and it was unable to pay bondholders or access the credit market.
Fast forward three years and both CIT and Thain have reemerged stronger than before.
"CIT has done an amazing job," says Henry Coffey Jr., an analyst at Sterne Agee. "They outlined a plan after the bankruptcy and systematically delivered on it."
That plan: Pay off and refinance debt, build assets and move past its the regulatory restrictions. CIT and Thain have accomplished all of that. The Fed imposed an oversight plan after the bankruptcy which restricted CIT on dividends, buybacks, and hiring among other things. The oversight was lifted in May.
CIT's biggest problem leading to its bankruptcy in 2009 was its heavy reliance on funding from bonds and short-term debt, also known as commercial paper. For example, CIT was paying its senior debt holders Libor plus 10--an astronomical rate for a company trying to make money by financing others.
Today CIT is funded much differently. CIT launched an FDIC regulated bank in October 2011 which now has $14 billion in assets and $11 billion in deposits. Those deposits represent about 35% of CIT's funding today compared to 10% back in 2009. Thain plans to grow that number.
Expenses are also down as Thain cut headcount from over 4,000 in 2010 to 3,420 today.
The turnaround has sparked talks of a potential acquisition of the company by one of the big banks. Thain has acknowledged the attractiveness of CIT saying traditional big bank are awash in deposits and unable to generate attractive assets while his company holds high-yielding assets.
"Some things are very easy in this business and CIT is the best example of that. They gave you a plan, showed you the numbers and executed. Now they're at a ROE of 10% or 12%," says Coffey.
