On Mar 28, the Australian Financial Review reported that CIT Group Inc.’s (CIT) Australian and New Zealand ‘s vendor finance business units are being targeted for acquisition by the Australia ’s Bank of Queensland. CIT Australia’s lending book is worth about A$500 million ($452.1 million) and the net assets are worth about A$200 million.

While both the parties are mulling over the agreement drawn, the step towards CIT’s reorganization signals the U.S. company’s critical sustainability amid the volatile economic conditions.

Previously, on Nov 1, 2009, CIT filed for bankruptcy protection after it failed to restructure outstanding debt and could not pay its bills. Its finances were hit by the credit market collapse and rising defaults among its customers. The company’s reorganization resulted in a $10.4 billion reduction in debt obligations, among other changes. CIT had received $2.3 billion from the U.S. government’s Troubled Asset Relief Program in Dec 2008 but it was scrapped off when the company filed for the bankruptcy. The commercial lender emerged from bankruptcy protection on Dec 10, 2009.

Although an agreement between the Australian bank and CIT has been entered into, the details of the deal remain undisclosed as well as the certainty of completion awaits confirmation from both parties and other regulatory approvals.

Earnings Recap

CIT reported a net income of $3.2 billion, including the reorganization benefit under the post-bankruptcy accounting known as Fresh Start Accounting (FSA). Excluding special accounting procedures and other items related to its reorganization, its quarterly pre-tax loss was $1 billion. Results reflected low finance revenue as well as high borrowing and credit costs, primarily in Corporate Finance segment of the company.

This is not the first foreign group that has been targeted by Australian banks, who have come out less unscathed as compared to their foreign peer groups. In 2008, the second largest lender of Australia, Commonwealth Bank of Australia, acquired HBOS’ HBOS.L BankWest for $1.5 billion and in 2009, the fourth largest Australian lender, Australia and New Zealand Banking Group, purchased a 51% stake in a wealth joint venture with the Australian unit of ING Group NV (ING) for $1.6 billion.
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