On Tuesday, CIT Group Inc. (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.
CIT’s commercial net charge-offs, which reflects loans that the company no longer expects to be repaid, totaled $385 million or 4.77% of average finance receivables. Before FSA, allowance for loan losses totaled $1.8 billion at Dec 31, 2009, up significantly from $1.1 billion at Dec 31, 2008. Overall credit metrics weakened considerably. Net charge-offs increased largely reflecting the deterioration from the slow economy, high unemployment and constrained market liquidity. This impact was most notable in specific industries within Corporate Finance segment of the company.
Besides, under its reorganization plan, CIT canceled its common stock and issued new shares. Using previous shares outstanding, the company reported loss of $3.8 million or a penny per share in 2009, compared to $2.9 billion or $11.06 per share in 2008. Excluding reorganization and FSA adjustments, net loss was $4.1 billion in 2009.
At Dec 31, 2009, CIT had total cash of $9.8 billion, while consolidated Tier 1 and Total capital ratios were 14.2 %.
Business Update
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 and the issuance of 200 million new common shares, among other changes. The commercial lender emerged from bankruptcy protection on Dec 10, 2009. CIT also recorded a $10.3 billion pre-tax benefit to fourth quarter results.
On Feb 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 Dec 2008 but it was scrapped off when the company filed for the bankruptcy.
Read the full analyst report on “CIT”
Zacks Investment Research
