CIT Group Swings to Profit – Analyst Blog

CIT Group Inc.’s (CIT) first quarter earnings came in at 49 cents per share, compared with the Zacks Consensus Estimate of a loss of 55 cents. Results for the quarter benefited primarily from lower operating expenses. Strong liquidity and capital position were also impressive during the quarter.

 

Net income for the reported quarter came in at $97 million. Net income included pre-tax net accretion and lower depreciation of $421 million. This reflects the fresh start of accounting balance sheet adjustments from December 2009.

 

Net finance revenue as a percentage of average earning assets came in at 4.09%. This includes a 3.55% net accretion and lower depreciation benefit. Non-spread revenue also benefited from gains on loan and asset sales.

 

Operating expenses decreased from the prior quarter to $261.9 million. Operating expenses for the reported quarter includes $12 million of restructuring charges related to CIT Group’s actions to better align its costs.

 

Provision for credit losses was $186.6 million. The provision includes $37 million for reserves on new originations and $74 million for re-establishing reserves on performing loans.

 

Capital ratios were strong during the reported quarter with Tier 1 capital ratio of 15.5% and total capital ratio of 15.8%. The improvement in capital ratios was a result of a decline in risk-weighted assets and an increase in common equity.

 

CIT Group’s total cash increased to $10.0 billion, consisting of $5.5 billion of cash available to repay debt at the bank holding company, $1.5 billion at CIT Bank, $1.5 billion at operating subsidiaries and $1.5 billion in other restricted cash.

 

The company’s loan and lease volumes totaled $900 million during the reported quarter.

 

On November 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. 



 

On February 9, 2010, CIT voluntarily prepaid $750 million principal amount of the $7.5 billion first lien term loans under the credit facility and the expansion credit facility, using available cash. The prepayment was applied pro rata across both facilities. The prepayment was subject to a 2% payment premium that came to $15 million. 



 

CIT received $2.3 billion from the U.S. government’s Troubled Asset Relief Program in December 2008 but the aid was scrapped when the company filed for bankruptcy.

 

Yesterday, Australia’s Bank of Queensland has agreed to acquire CIT Group’s equipment lending business units in Australia and New Zealand. The Bank of Queensland has been targeting these units since March 2010. The size and terms of the deal, which is expected to close in the second quarter of 2010, were not disclosed.



While the deal has been finalized, the step towards CIT’s reorganization signals the U.S. company’s critical sustainability amid the volatile economic conditions.