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By Maxwell Murphy
   A DOW JONES NEWSWIRES COLUMN

NEW YORK (Dow Jones)–Given a choice between nothing and 2.5% of CIT Group Inc. (CIT), CIT stockholders need bondholders to swap their existing notes for new ones and most of CIT’s equity.

Problem is, bondholder support is no sure thing, and even if the CIT plan works, investors buying CIT stock at today’s levels are probably vastly overpaying. And if CIT falters even after a successful recapitalization, CIT shareholders will find that 2.5% of nothing is nonetheless nothing.

CIT shares traded higher Friday on the news, but even at nearly unchanged Monday levels around $1.15 a share, the implied valuation of CIT is over $18 billion, over 50% more than its mid-2007, all-time high market capitalization. Even if CIT would emerge from the proposed debt exchange healthy as ever – and nobody’s saying anything like that – a more appropriate valuation would be around 75 cents apiece. Given CIT’s troubles will be far from over even if the exchange succeeds, the stock’s probably fetching double or more what it should in even the cheeriest scenario.

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By Maxwell Murphy
   A DOW JONES NEWSWIRES COLUMN

NEW YORK (Dow Jones)–Preferred stock in Citigroup Inc. (C) fell Wednesday as the opportunity to participate in the company’s exchange offer ended, and the only question now is why some classes aren’t making more of a bee line toward zero, because that’s what they are now worth.

Citi’s multi-billion-dollar offer for investors to exchange some issues of existing preferred stock for newly minted common stock expires Friday afternoon. Problem is, trades typically take three days to settle, meaning preferreds purchased Wednesday will be ineligible for tender.

John Feldman, a private investor in Baltimore who is intimately familiar with Citi preferreds and who says he has used several types of sophisticated trades to arbitrage the exchange offer to lock in gains, said he is unsure why at least four series of Citi preferreds haven’t lost most of their value.

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By Michael Rapoport
A DOW JONES NEWSWIRES COLUMN

NEW YORK (Dow Jones)–Goldman Sachs Group Inc. (GS) just took the idea of a “kitchen-sink quarter” up a notch.

In a kitchen-sink quarter, a company reports a ton of bad news – everything but the kitchen sink – in one quarter’s earnings, making that period look bad but clearing the decks so that future earnings look better.

That’s sort of what Goldman did Monday. Only it put $2.7 billion worth of write-downs and losses into a single month, last December. And it’s a month that Goldman doesn’t have to include in or compare to any other period’s earnings – indeed, the bank barely has to think about or refer to that month ever again.

This comes about because Goldman changed its fiscal year to end in December instead of November, so as to be more in line with other banks after Goldman became a bank holding company last fall. That left December 2008 as a “stub” to be reported separately, not part of last year’s fourth quarter or this year’s first quarter.

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 In the Dow Jones Newswires column, “Banks Still Seek To Soften ‘Mark-To-Market,”   Michael Rapoport writes that banks are  seeking “adjustments” in the
mark-to-market rules and correction of “unintended consequences

In part:

  NEW YORK (Dow Jones)–Apparently, the banks are determined to keep blaming their problems on the scapegoat of “mark-to-market” accounting until it sticks.

  Banks and other financial companies have repeatedly tried and failed to get regulators to suspend the mark-to-market rules, which require companies to peg their investments’ value to the ups and downs of the market. The banks say those rules, and the related “fair value” rules requiring disclosure of how companies value their assets, have forced them to record big losses on the basis of a market plunge that’s only temporary. Continue reading…

Michael Rapoport’s column “IN THE MONEY: TARP Recipients Propped Up Banks’ Capital” says some banks benefitting frm Treasury’s largess may not be quite as healthy as they appear.