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Bruce Berkowitz Pulls Plug on CIT - Sold Out 16 Million Shares

April 30, 2013 | About:
Sally Jones

Sally Jones

49 followers
“Bullish on America” investor phenom Bruce Berkowitz once said, "I don’t invest in things I can’t understand.”

Berkowitz’s Fairholme Fund has sold out its second largest holding, CIT Group Inc. (CIT) as of March 31, 2013. Because the Fairholme Fund is so highly concentrated and because Berkowitz is Berkowitz, this latest trade is major. With CIT turning around a 2009 bankruptcy, you have to wonder what part of the company is not making sense: Read the five warning signs issued by GuruFocus in a recent checkup on CIT financials and performance.

Here are the trade details:

Fairholme Fund shed 16,358,129 CIT Group Inc. shares at an average price was $42.08 per share, for a 0.5% gain, as of March 31, 2013.



The Fairholme Fund “ignores the crowd” and has a reputation for being distilled, focusing primarily on only five stocks that make up 80% of its net assets: American International Group Inc. (AIG), Bank of America Corporation (BAC), Sears Holdings Corporation (SHLD), St. Joe Corporation (JOE) and Leucadia National Corporation (LUK).

Up 12% over 12 months, CIT Group Inc. (CIT) is a specialty finance company with a market cap of $8.53 billion, a P/E ratio of 503.7, and a P/S ratio is 5.1. The company’s 2012 net income was in the red for $592.3 million. However, the company reported its first quarter 2013 net income of $163 million, or $0.81 per diluted share, compared to a net loss of $427 million, ($2.13) per diluted share, for the first quarter of 2012. The company said the loss in the year-ago quarter was primarily due to $620 million of debt redemption charges, compared to $18 million of debt redemption charges in the current quarter.

Founded in 1908, CIT Group Inc. provides commercial financing and leasing products and services to small and middle-market businesses clients in over 30 industries and around 20 countries. The company also operates its primary bank subsidiary, CIT Bank.

In his recent quarterly report, CIT Group’s Chairman and Chief Executive Officer John Thain, said, “CIT Bank experienced solid asset growth and deposits now play a larger role in our diversified funding mix, accounting for a third of our total funding. We continue to maintain a strong balance sheet and capital ratios, and remain focused on improving our operating efficiencies and meeting our profitability targets.”

GuruFocus “Guru of the Year 2012” Bruce Berkowitz expressed confidence in American companies to generate reasonable returns on equity, in his most recent letter to investors. As of April 26, 2013, Berkowitz’s Fairholme Fund lists 10 stocks, with no new stocks, in a portfolio valued at $5.9 billion, and a quarter-over-quarter turnover of 0%.



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About the author:

Sally Jones
Sally Jones writes about Real Time Picks. She says, "I truly enjoy watching the Gurus in realtime and telling their story."

Rating: 4.2/5 (6 votes)

Comments

wsjalerts13
Wsjalerts13 - 1 year ago
Big pain to have John Thain, he finally realized and got out
stevenramsey
Stevenramsey - 1 year ago
I don't know if I'd say he "doesn't understand it anymore". That's a big assumption. It is more likely that he is content with a gain, or that he is looking to build up cash for future ideas. But I wouldn't just assert that, if he's already made an investment in it. The fact that he made the investment in the company, with a concentrated portfolio, proves that he has a pretty good understanding of the business.
vgm
Vgm - 1 year ago
"Clearly, he doesn’t understand CIT Group Inc. any longer."

Sally -- your opening paragraph is just riddled with erroneous logic and assumption.

The opposite conclusion can be drawn. Not only did he buy in the first place and show his understanding and conviction (as mentioned in the previous post), but he understands it sufficiently well to know when to exit.

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