After receiving necessary regulatory approvals in Jul 2015, CIT Group Inc. CIT completed the acquisition of IMB Holdco LLC, the parent company of OneWest Bank N.A. This led to the creation of a financial institution with over $65 billion in assets (based on financial data as of Mar 31, 2015).
The cash-cum-stock deal, worth $3.4 billion, was announced in Jul 2014. Under terms of the deal, shareholders of IMB Holdco LLC received nearly $1.9 billion in cash and roughly 30.9 million shares, along with approximately 168,000 restricted stock units of CIT Group.
Further, as part of the agreement, CIT Bank merged with OneWest. This merged entity was renamed as CIT Bank, N.A., which operates an Internet banking franchise and a network of 70 retail branches in Southern California as OneWest Bank.
John A. Thain, the Chairman and Chief Executive Officer, said, “The completion of this transaction advances our strategic efforts to build a leading commercial banking franchise. Through the combination of our national lending and leasing platform with OneWest’s wholesale lending and branch banking franchise, we’ve created a differentiated provider of banking services for small and middle market businesses.”
Following the completion of the transaction, certain management changes also took effect. While Thain continues to be the Chairman and Chief Executive Officer, the former Chairman of IMB Holdco LLC, Steven T. Mnuchin, will serve as Vice Chairman of CIT Group. Moreover, Al Frank, a former independent director of OneWest Bank, along with Mnuchin, joined CIT Group Board.
Road Ahead
With the completion of the deal, CIT Group’s assets now have crossed the threshold for the company to be considered as a ‘systematically important financial institution’ (“SIFI”) by the regulators. Financial entities deemed as SIFI face tough regulatory requirements, including undergoing an annual stress test. Some of the major banks that undergo the annual stress test include JPMorgan Chase & Co. JPM, Bank of America Corporation BAC and Citigroup Inc. C.
Thain stated that CIT Group expects to undertake the 2016 round of stress test. The company has been building stress-test systems, strengthening its anti-money laundering controls and working on its data systems.
Hence, next year onward, the company’s capital deployment activities will require the approval of the Federal Reserve for which it needs to clear the stress test. At present, CIT Group pays 15 cents per share of quarterly dividend and has an active share buyback plan in place, with an authorization to repurchase up to $200 million of shares in 2015.
On the acquisition front, no major deals are expected in the near term. Though the company did not take any debt to complete the OneWest deal, we believe that as of now, it could concentrate on growing organically. As of Jun 30, 2015, the company’s balance sheet position remains strong. We believe that CIT Group is well positioned to grow in the long term.
However, sluggish growth in the industries where CIT Group provides finance will likely dent its performance in the near term. Further, with increased regulatory requirements, there are chances of higher costs, fee reduction and restrictions.
Currently, CIT Group carries a Zacks Rank #4 (Sell).
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