FINANCIAL HOLDINGS

CIT

• S&P changed their outlook position on CIT from positive to stable after the company reported surprising 2nd quarter loss of $134MM, reflecting a recorded one-time charge of $765MM, a fair-value adjustment on $10.6 billion in receivables to assets held for sale related to the decision to exit the mortgage business; the company also lowered second-half guidance citing complications in their home lending operations. 
• S&P: "We believe that while CIT's exit might have positive implications in the longer term, the uncertainty associated with its ability to exit this business through a sale, as well as the potential for further write-downs due to continued nonprime mortgage-market volatility, might adversely affect financial performance in the near term," S&P said in a statement.
• The company also decided to sells it construction division, recording a pre-tax gain of $2.6 B.  Excluding one-time charges, CIT would have surpassed last year’s earnings of $236MM. 
• Going forward, it appears that the worst has occurred to CIT.  They have rid themselves of their home lending portfolio and can focus on their much stronger suit, which is commercial lending.  Losses may continue in the coming year as the company rids themselves of their mortgage burden, but given the long-term nature of XSIF’s bond and the solid growth from divisions outside of mortgage division, spreads can seemingly only narrow from this point.  

Goldman Sachs

• Goldman Sachs’ largest hedge fund with roughly $8 billion in assets, Global Alpha Fund, was down approximately 33% through August. 
• Despite hedge fund troubles, GS surprised many investors by significantly surpassing third quarter earning expectations, reporting $2.8 billion in net profit.  While several businesses were surprisingly strong in a difficult period, the chief contributor to the earnings blowout were trades that made money from price drops in mortgage-backed securities. Goldman indicated this in its press release when it said that "significant losses" on certain bonds were "more than offset by gains on short mortgage products."

Bank of America

• Waiting to see third quarter results to be presented October 18th.  BOA CFO said credit markets will have significant impact on third quarter earnings.
• Bank of America may report a $700 million decline in the value of leveraged loan commitments and a $300 million decline in debt it is waiting to resell, the analysts said.  The surging mortgage defaults have haulted the credit markets, leaving Bank of America, one of the largest LBO funding firms, with unsatisfied LBO originations. 

Citigroup

• On 10/1, Citigroup Inc. announced that third-quarter profit fell 60 percent to approximately $2.2 billon after $5.9 billion of credit and trading losses on loans and mortgage- backed securities.  Earnings may drop to the lowest since the second quarter of 2004 because Citigroup will write down loans for leveraged buyouts by $1.4 billion before taxes, the New York-based company said in a statement today. It lost $1.3 billion on subprime assets and about $600 million in fixed-income trading, while higher loan-loss reserves contributed to $2.6 billion in credit costs in the consumer-banking business.
• CEO Charles Prince said 4th quarter earnings will return to “normal”.
• In October, Citigroup reported $8 billion loss, with projected losses estimated to be as high as $14 billion.
• CEO Charles Prince resigns, replace by Robert Rubin.

Wachovia

• Wachovia Corp. may reduce the value of its collateralized debt obligation unit as sales of CDOs, once the fastest-growing part of the debt market, were the lowest in more than a year in August, and some LBO deals including the $25.3 billion sale of SLM Corp. are near collapse.
• On 10/1, WB announced that it has completed its acquisition of A.G. Edwards, Inc., which will be combined with Wachovia Securities LLC to create an industry-leading brokerage firm with $1.1 trillion in client assets and nearly 15,000 financial advisor
• In  late October, Wachovia announce a $1 billion mortgage loss, with losses projected to be higher.