CIT Hires Former Merrill CEO John Thain To Run Lender

Good news for the nation's employment statistics! John Thain is heading back to work today after a 13 month absence from the work force. CIT Group has hired the former Merrill CEO to run the show at the bankrupt lender. But is this good news for CIT? As usual, I don't think it will make much of a difference. CIT made its bed years ago when it veered away from the staid business of lending to small businesses and dove headfirst into subprime and student lending. Ironically, the brilliant move into toxic lending was pioneered by CIT's former CEO, Jeffrey Peek, another Merrill banker. I'm not sure why the board at CIT thinks that hiring yet another investment banker is the solution to all that ails the lender. One would think that after all the debacles of the past couple of years in the banking industry, it might sink in at company boards that celebrity CEO's aren't worth the money. Yet it hasn't. Perhaps CIT's board thinks that Mr. Thain will convince Bank of America to pay $50 billion for CIT? After all, that was Mr. Thain's only accomplishment in his brief tenure as the head of Merrill Lynch (other than redecorating the office.) It's not like he somehow magically made all of Merrill's losses on its CDOs disappear. The funny part is, selling Merrill wasn't even his idea. And yet somehow, he's worth $5.5 million in restricted shares.

Earnings Update 4/17/2008

Merrill Lynch reported stellar earnings. Its net loss was only $1.96 billion after taking a $6.5 billion write-down. The most interesting part of this earnings report is not the write-down, which even my cab driver the other day was estimating at around $6 billion, but the precipitous declines in all of Merrill's other businesses. Debt and equity underwriting dropped by 61% and 45% respectively. Underwriting is supposed to pick up the slack when trading suffers, but apparently, that doesn't always work. Thank goodness John Thain was given $78 million in pay last year for starting in December (according to the Wall Street Journal's CEO compensation report.) Can you imagine how much Merrill would've lost if Thain wasn't "adequately motivated?"

In other finance news, SLM reported a loss of $.28 a share. The company wants you to ignore the loss and pay attention to its "core earnings" which were $.34 a share. The loss, apparently, is supposed to be one of those "one-time" things, that has happened to SLM three quarters in a row now. Given the incredible turmoil in the student loan market, it is hard to imagine that SLM will ever rise to its former glory when JC Flowers was willing to pay $60 a share for the company very recently. It may not ever rise to its former glory of $45 a share, the price SLM paid to buy back its own shares after Citi exercised the puts SLM had sold against its own stock. SLM then had to issue stock at $20 to fund the buyback, locking in a $1 billion loss. More importantly, SLM said it cannot issue any more loans until liquidity improves. What this means is that the company is just sitting on about $155 billion in loans with shareholders equity of $5 billion. Time will only tell what will happen to delinquency rates in student loans when students are no longer receiving 50 offers a week in the mail to consolidate or refinance their loans.

If you haven't already jumped out the window after reading this depressing report of the state of our financial institutions, there is some good news out there. Both INTC and IBM reported solid earnings yesterday, so all may not be lost. Google's earnings are probably the most anticipated in the tech world. Options traders will tell you with confidence that they have no idea what Google's earnings are going to be, but the stock is going to make a $50 move in either direction.