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CIT Group reported on Tuesday a profitable quarter (its second since emerging from bankruptcy) and progress toward paying down debt.
July 27 -
CIT's first-quarter results revealed a scrubbed balance sheet and a strong liquidity position. Though its prospects are brightening, however, the company is nearly as dependent on government support as before it entered bankruptcy in November.
May 10 -
One of John Thain's challenges as the new chairman and chief executive of CIT Group Inc. will be persuading regulators to let the commercial finance company become more bank-like.
February 8 -
Now that it has emerged from bankruptcy, CIT Group Inc. has learned firsthand the same lesson other nonbank lenders have: the key to survival is to be more like a bank.
December 29
Regulators have removed a significant barrier in CIT Group Inc.'s plans to act more like a bank.
The small business lender said Wednesday that the Federal Deposit Insurance Corp. and the Utah Department of Financial Institutions had lifted cease-and-desist orders against its banking subsidiary, CIT Bank.
The orders had barred the bank from increasing its brokered deposits above the $5.53 billion it held as of July 16, 2009, when the orders were issued. Imposed just a few months before CIT entered bankruptcy, the orders also prevented the bank from providing any funding to its parent, in effect shielding depositors from the liquidity crisis CIT was facing at the time.
Though the market viewed the termination of the orders as a positive (shares were up 7.2%, to $2.90, late in the trading day), the news may be more symbolic than anything else at this point in time, analysts said.
"The lifting of the cease-and-desist order at the bank largely removes a negative stigma, though it had very little practical impediment to the rebirth of CIT," wrote John Stilmar, director of financial services equity research at SunTrust Robinson Humphrey, in a research note Wednesday. "The primary benefit is the ability to raise brokered deposits at the bank above $5.527 billion. Given the significant excess liquidity at the bank, we continue to believe that CIT has no intent to grow its brokered deposits business over the near to intermediate term."
Michael Taiano, a managing director at Sandler O'Neill and Partners, agreed, saying that the announcement was "positive confirmation that CIT is making steady progress in addressing bank regulatory restrictions," but that the bank already has sufficient liquidity to fund corporate loan demand.
Coming on the heels of the company's first public bond issuance since the start of the financial crisis, it's another "milestone toward improving its debt ratings," Taiano wrote in a research note.
CIT emerged from bankruptcy protection in December 2009 and has since made progress on shrinking its balance sheet and paying down debt. In February of last year it brought on John Thain as its chairman and chief executive.
Thain, the controversial former head of Merrill Lynch & Co., was tasked with not only repairing CIT's relationship with regulators ($2.3 billion of government bailout funds were lost in the bankruptcy) but implementing a bank-centric model to help steer the company away from a reliance on the capital markets for funding.
CIT has turned a profit in every quarter since emerging from bankruptcy, reporting net income of $517 million for all of 2010. As of Dec. 31, the company had $50.96 billion in assets, including $11.2 billion of cash. Total deposits at the bank declined to about $4.5 billion at the end of 2010.
The company still has one more regulatory hurdle to go. The holding company has an outstanding written agreement with the Federal Reserve Bank of New York, requiring it to regularly report its plans related to corporate governance and credit risk management, among other things.
In his annual letter to shareholders, Thain said the company will work "to substantially satisfy the open items in the written agreement," this year.
CIT is scheduled to release first-quarter results on April 27.
