Over the weekend, we got the news that CIT Group (CIT) has filed for bankruptcy. The company tried to do everything it could to avoid this path, but ultimately they couldn’t.
I can’t say I’m surprised. I had downgraded the stock to a Sell a few months ago as their business was deteriorating. This morning, CIT’s creditors said they will support the bankruptcy move.
CIT Group is an important funder for small- and medium-sized businesses. The bad news for taxpayers is that we won’t get their $2.3 billion investment back. For investors, the important news is that the financial storm hasn’t fully passed. I strongly doubt this will be the last major financial bankruptcy.
I’ve pointed out that much of the market’s rally this summer was built up by lousy financial stocks. Companies that were still in serious peril saw their shares vault higher. Wall Street is starting to wake up and realize that the credit crisis lingers on. As that money shifts out of low-quality financial stocks, it will naturally gravitate towards high-quality fundamentally superior stocks.