CIT Profit Plunges on Reverse-Mortgage Problems
Quarterly profit at CIT Group plunged after the in Livingston, N.J., company recorded $167 million in charges tied to its discontinued reverse-mortgage servicing unit.
The $66.7 billion-asset company said in a press release Thursday that it earned $14.1 million, which was a significant decline from the $115.3 million it reported a year earlier. Earnings per share of 90 cents were 13 cents higher than the average estimate of analysts polled by Bloomberg.
The big charge stemmed from ongoing issues with CIT's Financial Freedom business, which the company inherited from its purchase of OneWest Bank in Pasadena, Calif. CIT bought OneWest last August.
CIT's bread-and-butter business commercial banking weakened as it embarks on a broader turnaround plan. Soft demand from midsize companies plagued it and other lenders last quarter. Will that problem continue the rest of the year?April 28
CIT earlier this year disclosed material weaknesses with the accounting in its reverse-mortgage business, causing it a delay in the filing of its annual report. The inspector general for the Department of Housing and Urban Development is investigating the unit, CIT said.
Ellen Alemany, CIT's chairman and chief executive, said in the release that she was "disappointed" by the Financial Freedom charges.
Net interest income was $212.8 million, compared with $18.6 million last year. The loan-loss provision rose 52%, to $28.1 million. The net finance margin expanded by 32 basis points, to 3.65%.
Fee income rose by 13% to $673.6 million on gains from the sale of leasing equipment and gains on derivatives.
Noninterest expenses rose 31% to $582.9 million on higher salary expenses and professional fees.