CIT Swings to Loss

The commercial finance company slashed its dividend as it works through liquidity problems.
By Debra Borchardt ,

Commercial lender

CIT Group

(CIT) - Get Report

swung to a loss in the first quarter and laid out a laundry list of ways to improve its liquidity status.

Before Thursday's bell, CIT reported a net loss of $257.2 million, or $1.35 a share, vs. a profit of $200.6 million, or $1.01 a diluted share, a year-ago. Analysts polled by Thomson Financial had expected a profit of 58 cents a share.

In a move to preserve capital, the company also slashed its dividend to 10 cents a share, down from the previous 25 cents. The company also set aside $270 million in reserves, as it prepares for problems in the home lending and consumer segments. The losing quarter was blamed on the liquidation of the consumer business.

CIT in March had announced that it had drawn down on its bank line of credit. On Thursday, it elaborated on the progress of the actions it was taking to improve its balance sheet, saying it is unloading roughly $4.6 billion of asset-based loans and related commitments.

The company is selling $770 million in aircraft and officials made it clear on its conference call with analysts to discuss earnings results that no planes in its fleet were in use by any airlines that recently filed for bankruptcy. They said that demand for aircraft remains strong and that 95% of their planes fly outside of the country.

CIT is also considering selling its $4 billion railcar leasing business. Executives seemed conflicted on the call as they crowed about the rail business' successes, yet acknowledged that this wasn't the best market to be selling in.

Executives dodged questions regarding CIT's exposure to troubled retailers

Talbots

(TAL) - Get Report

and

Linen& Things

. Earlier this week,

Bank of America

(BAC) - Get Report

and

HSBC

(HBC)

cut credit lines to Talbot's and Linens & Things, acquired by Apollo Management in 2006, is expected to file for bankruptcy.

When asked directly about the two companies, CIT officials would only say that they cut their exposure in half to "names that are stressed," and those actions were taken six to nine months ago.

Net finance revenue was down 11% from last quarter and 10% from last year. Other income for the quarter as a percentage of total net revenue (net finance revenue plus other income) was 32%, excluding items. That's down from 41% in the year-ago quarter, principally due to reduced syndication fees and receivable sales gains, consistent with current market conditions.

Commercial loan sales and syndication volume sank to $500 million, vs. $1.3 billion in the prior quarter. Gains on receivable sales and syndication fees were down. Factoring commissions were down from last quarter. Fees and other income declined from the prior quarter on lower joint venture earnings. But on a positive note, managed assets grew 2%.

The New York-based company made efforts to right the ship by cutting some employees and reducing staff.

"As we look ahead, it's clear we will operate a smaller, more nimble company that is competitively positioned to take advantage of both economic contractions and expansions," Chairman and CEO Jeffrey Peek said in a company statement.

CIT on Wednesday said it provided financing to Palladium Equity Partners to complete an acquisition of American Gilsonite, an industrial minerals company. And earlier this week, an affiliate of CIT, Edgeview Partners, served as financial advisor in the sale of Ajax Rolled Ring to Prospect Capital.

The stock jumped 6.1% to $12.50 Thursday.

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