This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

CIT Group Ups Risk, Eyes $1.6B Tax Gain

Stocks in this article: CIT

NEW YORK ( TheStreet) -- CIT Group (CIT) is increasingly making riskier loans as it looks to capture a $1.6 billion tax benefit.

The New York-based lender to mid-sized businesses reported a first-quarter profit of $163 million or 81 cents per share Tuesday, missing consensus estimates of 86 cents per share vs. a loss of $2.13 a year ago. Shares fell 1.38% to close at $40.88. They rebounded on Wednesday, however, and were up by 1.59% to $41.53 in early trading. BTIG analyst Mark Palmer attributed the miss to higher expenses, among other factors, in a report published Tuesday.

CIT, which filed for bankruptcy in late 2009 and reemerged under former NYSE Euronext (NYX) and Merrill Lynch chief John Thain, has been working to improve its funding costs and appealing to regulators to allow it to return capital to shareholders.

Despite the earnings miss on Tuesday, CIT got praise from Palmer and Oppenheimer's Chris Kotowski, who on Wednesday upgraded the shares to outperform from neutral while setting a $54 price target.

Kotowski sees CIT maintaining steady profitability, which he believes ought to allow it to recapture a $1.6 billion deferred tax asset by the end of 2014. That would add $8 per share to CIT's tangible book value of $40.35, Kotowski wrote in his upgrade note. Kotowski added management "did not offer a time frame," for the recapture on Tuesday's conference call.

Kotowski also believes "it is reasonable to expect some kind of return of capital, and most likely a share buy-back, by 2014."

BTIG's Palmer, however, stated in a note on Wednesday that regulators may be cautious about allowing a capital return while CIT remains subject to a constrictive "written agreement" with the Federal Reserve.

"While Thain had said during CIT's 4Q12 conference call that it would be possible for the Fed to approve the company's plan for capital return with the Written Agreement still in place, many investors with whom we have spoken have expressed skepticism about the Fed's willingness to demonstrate that degree of flexibility," Palmer wrote.

Palmer nonetheless maintained his "buy" rating and $45 price target. He stated in Tuesday's note he was encouraged by the continued reduction of high cost debt and increased gathering of lower-cost deposits.

Despite these positive signs, CIT CFO Scott Parker acknowledged in response to a question from analyst Sameer Gokhale of Janney Capital that the company has increasingly provided financing for so-called "dividend recap" deals. Those are deals in which private equity firms borrow money to pay themselves a dividend, rather than reinvesting in the business. This is perceived as risky because it increases debt without adding anything that might contribute to future profits.

Gokhale appeared to express surprise and a bit of confusion about the issue.

"But wait. Are you playing in the dividend recaps or not? Because my impression was that historically, you have not done as much in the dividend recap activity, just because that tends to be riskier," Gokhale said.

Parker acknowledged that CIT was financing such deals, though he said "it's not one of our core focuses."

-- Written by Dan Freed in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,030.21 +6.04 0.03%
S&P 500 2,081.88 -0.29 -0.01%
NASDAQ 4,773.4720 +8.0480 0.17%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs