CIT, John Thain Plot Escape Route

Remember that old movie about two escaped convicts who, while suspicious of one another, must cooperate because they're chained together? Perhaps Cit Group (CIT) and its new CEO, John Thain, can relate. And that mutual dependence -- and desperation -- explain why this jailbreak just might succeed.

CIT, the lender to small and midsize businesses that flamed out last fall in one of the biggest bankruptcies in U.S. history, needs a top chief exec with the right pedigree to lead its recovery. Thain, who Bank of America (BAC) unceremoniously ejected in 2009 over the Merrill Lynch fiasco, needs CIT to rehabilitate his career.

Pedigree, in this case, means someone who's respected on Wall Street. CIT's prospects ride largely on its ability to reassure investors that the company has the right management in place. By that measure, Thain's an excellent choice. Over his 24 years at Goldman Sachs (GS), he was instrumental in turning the investment bank into a profit machine. After leaving Goldman in 2003 he moved on to head the New York Stock Exchange, eventually becoming known as "Mr. Fixit" for helping modernize and revive the NYSE.

Other than the threat of bad PR, Thain's exit from Bank of America is unlikely to be of much concern to CIT investors. The executive got bounced partly because then-B of A CEO Ken Lewis needed a fall-guy for the company's misfortunes. Thain also showed a tin ear for public sentiment. As head of Merrill Lynch in 2008, in the teeth of the financial crisis, he spent big bucks sprucing up his office as the investment bank was laying off thousands of employees.

Prepare for a shock -- the Street doesn't give a damn about such stuff. For one thing, Thain has largely been exonerated for B of A's problems, with Lewis the one in the hot seat after New York AG Andrew Cuomo filed a civil suit against the deposed CEO (and it was a pretty nice trash can). What investors do care about is a track record of making money. Thain has that.

Certainly big swinging dick and major CIT shareholder Carl Icahn, who you can be sure company boardmembers consulted before selecting Thain, seems happy with the choice:

"He's a very good pick for the job," Icahn said in an interview. "Thain has a pretty good history of operations and making things happen."

CIT and Thain are also likely to have the support of another vital party -- the U.S. government. The feds lost more than $2 billion when the bankrupt company defaulted on its TARP loan. The Treasury Department, which almost certainly gave the nod to Thain's hiring, will have an interest in seeing CIT recover. The White House will also be in the company's corner, since another major financial company collapsing would spook investors and raise fresh questions about the U.S. economy.

The financial climate also appears favorable. Small and middle-market companies need money, and large banks aren't giving it to them. That business is CIT's stock and trade. I also wouldn't be surprised to see private equity investors, which have taken a shine to banks in recent months, sink some dough into CIT. The company will likely have to raise capital to support its banking activities, while buyout firms are under pressure to put their money to work.

But Thain's best bet as head of CIT -- both to unshackle himself from his recent past and to complete the company's rehabilitation -- ultimately may be to find a buyer. Although CIT's restructuring plan is plausible, the financial services industry is increasingly a land of giants. To survive as a lender to smaller companies, CIT will have to attract significant deposits, something such customers are typically short on. And given its credit record, raising money in the capital markets would be a tough sell for CIT.