CIT soars twenty percent on news of dumping mortgage business
Before the first hour of trading ended, shares of the CIT group were up over twenty-three percent!
CIT, not to be confused with Citi, announced the sale of its mortgage portfolio with assets valuing nearly $10 billion. The company unloaded its subprime mortgage business for $1.5 billion and it appears that Wall Street is pleased.
Just a few months ago the company made not-so-good headlines (and rightfully so) for drawing on its emergency line of credit to the tune of $7.3 billion. News of CIT’s credit woes back in March sent shares down as much as forty percent.
Since then, CIT has rebounded and raised approximately $1.5 billion in capital through issuing shares of common and preferred stock. The company received twice as much funding from Goldman Sachs.
Today’s news of the sale marks CIT’s total withdrawal from the mortgage industry. Unloading the subprime debt will definitely reduce the company’s risk exposure. I don’t think CIT is in the clear just yet, but this a step in the right direction.
Tags: asset sale, CIT, subprime mortgage
2 opinions for CIT soars twenty percent on news of dumping mortgage business
Chris McBride
Jul 2, 2008 at 7:09 pm
So clearly its a smart idea to unload its sub-prime mortgage business. What I don’t understand is who would actually pick up their paper on sub-prime mortgages? If it were just that easy to decide to unload sub-prime mortgages right now and do it, wouldn’t everyone in the sub-prime mortgage business be doing it?
Joel Drosehn
Jul 4, 2008 at 9:23 am
It’s probably a little upsetting to sell assets “valued” at $10 Billion for $1.5, although in this market who really knows what a mortgage portfolio is worth. The buyers are usually private equity funds that see these at investment opportunities. In this case it was Lone Star Funds - the company states that “out-of-favor” assets provide financing opportunities. I think the better question would be how these funds perform in the long-run.
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