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CIT Group Inc. (NYSE: CIT)

CIT Group Inc. (CIT) operates as the holding company for CIT bank, which provides commercial financing and leasing products, and management advisory services to the small and middle market companies worldwide. Its products principally include asset based loans; secured lines of credit; operating, capital and leveraged leases; vendor finance programs; import and export financing; debtor-in-possession/turnaround financing; acquisition and expansion financing; letters of credit/trade acceptances structuring; and small business loans.

The Company’s services primarily comprise financial risk management; asset management and servicing; merger and acquisition advisory services; debt restructuring; credit protection; accounts receivable collection; debt underwriting and syndication; capital markets; and insurance services for small businesses and middle market customers. It serves clients in various industries, including transportation, particularly aerospace and rail, manufacturing, wholesaling, retailing, healthcare, communications, media and entertainment, and various service-related industries.

The company was founded in 1908 and is headquartered in New York, New York.

Source: Reuters.com, SEC Filings.

Financial Summary

The total income (comprised of interest income, rental income and other) decreased 22.5% to $1,207 million in Q1 2009 compared to $1,557 million in Q1 2008. The Company reported a loss of $438.1 million ($504.5 million after preferred dividends), $1.30 per share, for the first quarter of 2009, compared to a loss of $240.7 million ($259.2 million after preferred dividends), $1.35 per share from continuing operations for the comparable 2008 quarter.

The Company’s operating results for Q1 2009 reflects the weak economic environment as charge-offs and problem loans rose and it increased the allowance for loan losses. Interest margins compressed primarily due to higher cost of secured borrowings

Total assets at March 31, 2009, were $75.7 billion, down from $80.4 billion at December 31, 2008. Total owned and securitized financial assets were $65.8 billion, lower than last quarter. Estimated risk weighted assets, which include both on-balance sheet and off-balance sheet assets and unfunded commitments in accordance with Basel I requirements, were approximately $75 billion, down from $79 billion at December 31, 2008. CIT ended the quarter with $6.0 billion of cash, down from $8.4 billion at December 31, 2008, as the Company repaid more than $3 billion of unsecured debt that matured in the quarter. Total capital at March 31, 2009, was $9.8 billion, compared to $10.4 billion at December 31, 2008.

The shares of CIT plunged in the last months as uncertainty mounts over whether it can get federal backing for its bonds. The Company said it is still in talks with regulators on ways to improve its near-term liquidity as recent losses may jeopardize its compliance with capital requirements. The Federal Deposit Insurance Corp.’s Temporary Liquidity Guarantee Program could let the Company to small and midsized businesses issue government backed bonds to raise capital at a lower cost.

Analyst Consensus

U.S. Dollar # of Estimates Mean High Low 1 Year
Ago
Net finance revenue (in millions)
Quarter Ending Sep-09 2 177.05 192.70 161.40 604.10
Quarter Ending Dec-09 2 173.95 203.20 144.70 637.50
Year Ending Dec-09 3 1,208.63 2,214.00 658.40 2,286.88
Year Ending Dec-10 4 1,453.20 2,432.00 511.10 2,571.48
Earnings (per share)
Quarter Ending Sep-09 8 -0.98 -0.74 -1.30 0.37
Quarter Ending Dec-09 8 -0.95 -0.75 -1.57 0.37
Year Ending Dec-09 9 -4.88 -3.15 -7.25 1.17
Year Ending Dec-10 8 -1.70 0.83 -3.25 1.35
Source: http://www.reuters.com/finance/stocks/estimates?symbol=KERX.W

Analysts polled by Thomson Reuters recommend CIT a “Hold,” with eight analysts recommending the stock a “Hold,” up from seven analysts three months ago and two analysts rating the stock with “Sell,” up from 0 analysts three months ago. Thomson Reuters pooled analysts anticipate interest revenue of $1,209 million and a net loss per share of $4.88 for the fiscal year 2009.

Investment Highlights

The management is working to transition CIT from a wholesale capital markets funded finance company to a deposit-funded bank franchise with the goal that the bank will be the primary vehicle through which it does business in a number of different franchises. As the Company works its way through this transition, its objectives are to manage liquidity while the credit markets remain disrupted, limit credit risk during this economic downturn, return to profitability, and preserve the value of our core commercial franchises.

In April 2009, the Federal Reserve approved the initial phase of the Company’s 23A waiver. In this initial phase, CIT transferred $5.7 billion of its government-guaranteed student loans and accrued interest. In consideration for this asset transfer, the bank assumed $3.5 billion of related debt, mostly conduit financing and paid approximately $1.6 billion of cash to the holding company. CIT is requesting not only permission to transfer additional assets, including commercial assets, but also permission to transfer certain U.S. operations, including originations and servicing platforms. These 23A asset transfers are intended to largely facilitate the transition of the Company’s funding to a more diverse, deposit-based composition. Deposits raised in the first quarter were in excess of $700 million, with approximately $690 million in certificates of deposit (CDs). The Company expects to further increase existing deposit raising activities in CDs, while it seeks methods to further diversify bank-level funding sources.

CIT announced that Fitch Ratings has downgraded the Long-term Issuer Default Ratings (IDR) of CIT and subsidiaries to ‘C’ from ‘BB+’. In addition, Fitch lowered the Individual Rating to ‘E’ from ‘D,’ which indicates CIT either requires or is likely to require external support.

On August 3, 2009, the Company announced that it amended the terms of its pending offer for its $1 billion Floating Rate Senior Notes due August 17, 2009. On July 29, 2009, the Company entered into an amended credit agreement (the Credit Facility) with a group of its major bondholders. The Company has received the final $1 billion in incremental borrowings under the Credit Facility, bringing the total loan size to $3 billion. The Company will use a substantial amount of the loan proceeds to support its small business and middle market customers. The Company also announced that its board of directors has decided to suspend dividend payments on its four series of preferred stock in order to improve liquidity and preserve capital while restructuring efforts are ongoing.

Reuters reported that CIT may announce an agreement to obtain $3 billion of emergency financing from bondholders, keeping the Company out of bankruptcy. The money could strengthen CIT’s finances and allow more time for the small- and mid-sized businesses to restructure its debt. An agreement could also preserve the government’s $2.33 billion investment in CIT from the Troubled Asset Relief Program. CIT became eligible for such financing when it became a bank holding company in December, 2008. Despite these, CIT Group Inc could still file for bankruptcy if a cash tender offer for its outstanding notes fails.

CIT Group suspended its preferred-stock dividends August 8, as it works to avoid a bankruptcy filing. CIT said it would suspend dividends on its four series of preferred stock “in order to improve liquidity and preserve capital while restructuring efforts are ongoing.” It said payments on its equity units wouldn’t be affected. The dividend suspension would save the company around $50 million a quarter. Still, with around $10 billion of debt maturing through the end of next year that may not be enough to help the Company avert a bankruptcy filing.

Technical Analysis

Source: http://stockcharts.com/h-sc/ui

CIT is trading above its 13 day moving average. This is considered to be the sign of a bullish trend. There is added weight to this indication because the moving average is rising and suggests that there has been buying interest in this stock.

CIT’s MACD is currently indicating a weak bullish signal. Although the MACD is trending above the signal line, the indicator is still below 0, which suggests that the underlying moving averages are bearish.

Comparative Analysis

The Company is expected to report operating losses over the next two years. Moreover it requires external financing to maintain liquidity and payment capacity. Given the accelerated economic downturn and its deepening impact on the Company’s customers and credit exposures, combined with its inability to make significant progress on lowering funding costs, the Company is threatened by bankruptcy.

Insider Trading Activity

Net Share Purchase Activity

Insider Purchases – Last 6 Months
Shares Trans
Purchases N/A 0
Sales N/A 0
Net Shares Purchased (Sold) N/A 0
Total Insider Shares Held 45.35M N/A
% Net Shares Purchased (Sold) 0.0% N/A

Net Institutional Purchases – Prior Qtr to Latest Qtr
Shares
Net Shares Purchased (Sold) (61,107,200)
% Change in Institutional Shares Held (21.4%)

Data provided by Thomson Financial

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