Thain May Have Trouble Unloading CIT
John Thain will have an uphill battle selling the CIT Group (NYSE:CIT) anytime soon, particularly to a big U.S. bank, and it has nothing to do with the décor of his office.
In fact, sources tell the FOX Business Network that Thain’s new office is a low-key affair, far different than the $1.22 million renovated palace he had as CEO of Merrill Lynch that became the object of scorn during the financial crisis.
“Lots of plastic and Formica, and no expensive paintings or area rugs,” is how one visitor described it to FOX Business.
Thain’s bigger problem as CEO of CIT is with federal bank regulators, who are likely to make it exceedingly difficult for him to sell the firm to a big “systemically important” U.S. bank, at least until after the presidential election, and possibly longer, according to investment bankers with first-hand knowledge of the matter.
Following JP Morgan’s (NYSE:JPM) “London Whale” trading loss, where the big bank’s risk managers — considered the best on Wall Street — failed to recognize a $6 billion wrong-way bet, regulators have begun to question major bank acquisitions among the top banks in the country, investment bankers say.
The reason: Regulators are now concerned about the big banks like JP Morgan, Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), and Bank of America (NYSE:BAC). being not just Too Big to Fail, but Too Big to Manage. The purchase of CIT, which is a lender to small and mid-sized companies, would be a big enough acquisition for regulators to question and, Wall Street executives say, probably block.
Shares of CIT have risen about 9% over the past year, and analysts say the price tag would be above $10 billion; how much is difficult to determine because the buyer would have to assume the firm's debt. As previously reported by FOX Business, Thain has been shopping CIT to bigger players.
Analysts say Wells Fargo could be a likely acquirer, but because of the regulatory climate, Thain may have to sell to a large Canadian bank.
A spokesman for CIT declined to comment.
Another problem CIT faces is growing its business through acquisition. The problem stems from its 2009 Chapter 11 bankruptcy filing. CIT was one of the many casualties of the 2008 financial collapse, and like the big banks, CIT received a government bailout before it filed for bankruptcy. It took about a month for the firm to emerge from Chapter 11, but the government lost its entire $2.3 billion investment.
Thain became CEO in early 2010 and has improved the firm’s business, cut debt and the shares have rebounded. However he failed to buy ING Direct. One reason, according to analysts, is that CIT’s primary regulators at the Federal Reserve put the firm on a restricted list, preventing it from making major acquisitions.
Analysts say the Fed may soon remove CIT from the list, clearing the way for growth through acquisitions.
A spokeswoman for the Fed had no comment.
But Thain’s bigger goal is to sell CIT to a big bank and put himself in the running to head a major financial firm. Thain was a long-time Goldman Sachs (NYSE:GS) executive who left the firm in 2004 to be CEO of the New York Stock Exchange.
He joined Merrill Lynch in early 2007 as its CEO just at the start of the financial crisis and his brief tenure was controversial. While considered one of the best operational managers on Wall Street, he made a series of missteps that led to his ouster in 2009, just after Merrill was purchased by Bank of America amid the banking meltdown.
One misstep was his outlandish office renovation, which was even criticized by President Obama largely because news of it was disclosed just after the combined Bank of America and Merrill Lynch received a massive government bailout.
Thain no longer keeps much of an office, according to people who have been to CIT’s New York headquarters. Gone are the $35,000 “commode on legs” and $1400 “parchment waste can,” according to one person with direct knowledge of the matter.
“It looked like an insurance office…he seems to have learned his lesson,” this person said.