Trader Talk

This Rally's Big Drivers


Better commentary from two "financial outliers" has been a clear factor in the financials rally this week.

The S&P Financials far outperformed all other sectors this week, and you can thank CIT and AIG.

Leading sectors this week:

  • Financials up 9.3%
  • Industrials up 3.8%
  • Materials up 3.3%
  • Cons. Discretionary up 2.8%

1) CIT sweetening their bond buyback offer on Monday, and it was successful. They could not afford to pay the interest on the bonds, so they increased the price they were offering to tender them-to 87.5 cents, from 82.5 cents, and lowered the hurdle, requiring that only 58 percent of the bondholders approve the deal, down from 90 percent.

It worked. That has helped allay bankruptcy fears, as well as counterparty risks.

They also amended their credit facility, allowing them to borrow more money.

Bottom line:CIT has doubled this week, from 87 cents to $1.78.

2) AIG used the magic, somewhat devalued word in its earnings report: stabilized. Some businesses stabilized "and the company's results reflected positive valuation changes." Simply put, the value of their assets showed some improvement, which was a key point of speculation in the past several days and a factor in the short-squeeze that occurred on Wednesday and Thursday.

Bottom line:AIG has also doubled this week, from $13 to $27.

These two reports have allayed some concerns about asset quality and the ability of troubled companies to continue their restructuring efforts. They have also made the "double dip in financials," whereby financials fall apart again later in the year, a little less likely.



Questions?  Comments?