Looking for a Comeback, Thain Shopping CIT Group

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Published September 24, 2012

| FOXBusiness

Comebacks on Wall Street aren’t easy, particularly after you get caught spending gobs of shareholder money to redecorate your office with expensive rugs and something called a “commode on legs,” but former Merrill Lynch chief executive John Thain is attempting just that, the FOX Business Network has learned.

Thain, currently the CEO of a small lending outfit called CIT Group (CIT), has been quietly shopping the firm to a larger player with the goal of selling possibly to a big bank and emerging as a candidate to run the bigger company, according to investment bankers with direct knowledge of the matter.

Bankers say Thain began putting out feelers to sell CIT after the firm failed in its bid to purchase ING Direct earlier in the year.

“They've been shopping themselves off and on because they have virtually no deposit base and thus no low-cost source of funds to run their business,” said one banker at a major firm with knowledge of CIT’s activities. “Thain may also be putting out feelers, trying to get a drumbeat going. Who knows, but it's certain he's up to something.”

CIT had no comment, but a spokesperson there would not deny the matter.

Thain’s career on Wall Street has been controversial. A long-time Goldman Sachs (GS) executive, he left the firm in 2004 to run the New York Stock Exchange, taking the Big Board public and implementing electronic trading that all but ended the floor trading business. He joined Merrill Lynch in late 2007 as its new CEO replacing Stanley O’Neal as the firm began to hemorrhage losses due to its exposure to subprime debt.

Thain didn’t help the company’s prospects much when he appeared to underplay the severity of the firm’s financial health before it was forced to sell itself during the height of the financial crisis to Bank of America (BAC).

Still, he was considered the odds-on favorite to eventually replace then BofA chief Ken Lewis, that is, until a series of additional missteps doomed his chances. After the deal was approved by Bank of America’s shareholders, Merrill revealed additional large trading losses that forced the bank to seek federal assistance to survive.

Amid all of this, Thain was asking for a $10 million bonus, and later it was revealed on the DailyBeast website that he had spent $1.22 million of shareholder money to refurbish his office at a time when he was cutting jobs at Merrill. The big ticket items included an $87,000 rug, a $25,000 “mahogany pedestal table,” $35,000 for a “commode on legs,” and $1,400 for a “parchment waste can.”

He also spent $800,000 so famed celebrity designer Michael Smith could do the work. Smith redesigned the White House for President Obama, but only for $100,000.

Ironically, President Obama referred to Thain’s office spending just after being elected. Asked about Wall Street as it  was emerging from the financial crisis, the president said that "the reports that we’ve seen over the last couple of days about companies that have received taxpayer assistance then going out and renovating bathrooms or offices or in other ways not managing those dollars appropriately."

Thain repaid the company for the office renovation but faced months of ridicule and was thought to be exiled from Wall Street for good. In early 2010, he was appointed chief executive of CIT, which had just emerged from bankruptcy.

Shares of CIT have risen more than 9% over the past year.

One problem Thain has is growing CIT’s business of lending to small and mid-tier companies without a deposit base like a traditional bank. Having deposits lowers the firm’s cost of capital, and earlier in the year it failed to snap up ING Direct, after the online bank was purchased by Capital One Financial (COF).

Since then, Thain has been putting out feelers to banks that might be interested in his business, in what observers say is a move to run a major institution. Stifel Nicolaus analyst Christopher M. Mutascio said Monday that Wells Fargo (WFC) may be interested, though bankers say Wells is looking to add to its asset management business, not expanding its lending unit.

Last week the firm BTIG LLC put out a research note that said well-capitalized Canadian banks would be in the best position to purchase CIT, largely because “the company has re-established itself as a leader in the U.S. middle-market lending space as evidenced by over $4 billion in new loan commitments last year. That niche is particularly attractive given the relatively benign competitive environment. The concept of lending to the middle-market, where the bulk of U.S. companies operate, is compelling to many financial institutions given that it is an often underserved space.”

Still BTIG said it didn’t foresee a sale until shares trade about $50, from their current levels in the low $40s.

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http://www.foxbusiness.com/business-leaders/2012/09/24/thain-shopping-cit-group-around/