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CIT Shares Rally as Company Seeks to Avoid Bankruptcy

Posted by: Ben Levisohn on July 17, 2009

CIT Group may not declare bankruptcy after all. Reports say that the beleaguered lender may receive as much as $3 billion from Goldman Sachs and JPMorgan Chase, while bondholders are said to be considering a debt-for-equity exchange, a deal that could relieve CIT’s cash crunch. These rumors pushed shares of the teetering financing company up over 70% today.

Still, the rally has not done much to help investors unlucky enough to own CIT’s stock before its recent collapse. Shares have plummeted 81.5% year-to-date and 45% during the past week.

The damage to mutual funds has, in most cases, been limited, says Morningstar. The Vanguard 500 Index Fund held 1% of CIT stock outstanding, but those shares made up only .02% of the fund’s assets. Others, however, held much larger positions. The $2.6 million Academy Select Opportunities Fund (ASELX), which holds only 21 positions and is up 9.74% year-to-date, suffered the biggest loss from CIT exposure. As of June 30, 2009, the fund:

…had a staggering 11% of its assets in the company… and over the last month alone the fund dropped close to 6% and trails 99% of its small-blend peers over the same period.

Still, if CIT manages to avoid bankruptcy, the fund could recoup some of those losses.

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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