By Andrew R. Johnson
Business lender CIT Group Inc. said profit declined 37% in the
fourth quarter on a tax-related charge, though Chief Executive John
Thain noted signs of economic improvement that could help spur loan
demand this year.
The Livingston, N.J.-based company provides financing to
businesses for mergers and acquisitions, office equipment,
transportation services and numerous other needs. It often competes
against larger banks, which have expressed renewed optimism that
loan demand will increase this year as improving economic
conditions help boost business confidence.
"As we look out over 2014, we see gradual improvement in both
the U.S. and European economies," Mr. Thain said on a conference
call with analysts Tuesday. However, he cautioned that competition
for business among lenders will result in "continued pricing
pressure" on loans.
CIT said it earned $129.9 million, or 65 cents a share, down
from $206.8 million, or $1.03 a share, a year earlier.
Analysts polled by Thomson Reuters were expecting the company to
earn 81 cents per share, on average. This miss was partially due to
the tax charge which some analysts didn't factor into
estimates.
The results "were something of a mixed bag but nevertheless
reflected the company's steady progress," Mark Palmer, an analyst
with BTIG, wrote in a research note.
Shares of CIT were down 0.6% at $46.93 in recent trading. The
shares are up more than 15% over the last year.
In December, CIT said it reached a deal to pay former parent,
Tyco International Ltd., $60 million to resolve issues surrounding
a tax agreement the companies entered into when Tyco spun the
business lender off in 2002. The settlement resulted in a $45
million charge in the quarter.
CIT has clawed its way back to profitability since emerging from
Chapter 11 bankruptcy in late 2009 by paying down or refinancing
more than $31 billion of high-cost debt, selling troubled loan
portfolios and increasing its reliance on deposits to fund its
loans, which has helped to lower its costs. Mr. Thain, a Wall
Street veteran who previously led Merrill Lynch, has helped focus
the company's efforts on regaining market share it lost in the wake
of its bankruptcy, and re-entering businesses that the lender had
exited, such as commercial real estate finance.
CIT's outstanding loan portfolio fell to $18.6 billion in the
quarter, down $2.2 billion from a year earlier as it classified a
portfolio of student loans as held for sale. The company funded
$3.14 billion of new business volume during the quarter, up from
$2.58 billion in the previous quarter and $3.06 billion a year
earlier.
While lenders have struggled to boost revenue amid persistently
low interest rates and cautious borrowing activity by businesses,
banks such as J.P. Morgan Chase & Co., BB&T Corp. and
KeyCorp have recently said that improved economic conditions could
lead to an increase in activity this year. Zions Bancorp., a Salt
Lake City-based regional lender, said Monday that it has noted an
uptick in sentiment by small businesses, which may translate to
higher loan originations this year.
"As the economy improves, that will provide ... a greater degree
of confidence on the part of middle-market companies," Mr. Thain
said, adding that a rise in M&A activity could also help boost
lending activity.
The company saw improvement in its net finance margin--a key
measure of lending profitability--which increased to 3.95% from
3.86% a year earlier.
The company has been working to fund more of its loans through
CIT Bank, its Utah-based bank. In the fourth quarter, the bank
funded nearly all of the U.S. loan volume originated in the
company's corporate, transportation and vendor finance units.
CIT launched a consumer online bank in fall 2011 that offers
savings accounts, certificates of deposit and other products in an
effort to boost its deposit base. CIT Bank's deposits totaled $12.5
billion in the quarter, up from $9.6 billion a year earlier.
Mr. Thain has previously said that the company may try to
acquire a small bank to establish a branch presence. Chief
Financial Officer Scott Parker said CIT is "constantly looking" at
acquisition opportunities but "at this point we haven't found
something that meets the criteria we're looking at."
Last year the company said it planned to open a branch in Salt
Lake City that could serve as a prototype for other branches. A
spokesman said Tuesday the company expects to open that branch this
year.
In May, CIT marked a key milestone when the Federal Reserve Bank
of New York lifted limits the regulator placed on the lender in
2009 that curbed the company's ability to return capital to
shareholders.
Last week CIT announced a $300 million share repurchase program
for 2014, and said its board approved the purchase of $7 million of
shares remaining under an existing $200 million buyback program
announced in May.
The lifting of the regulatory limits and CIT's improved
performance have fanned speculation a larger bank will try to
acquire the company.
Write to Andrew R. Johnson at andrewr.johnson@wsj.com
Order free Annual Report for Tyco International Ltd.
Visit http://djnweurope.ar.wilink.com/?ticker=CH0100383485 or
call +44 (0)208 391 6028
Order free Annual Report for CIT Group, Inc.
Visit http://djnweurope.ar.wilink.com/?ticker=US1255818015 or
call +44 (0)208 391 6028
Subscribe to WSJ: http://online.wsj.com?mod=djnwires