CIT Hits Post-Bankruptcy High

Analysts cited improved credit quality and lower funding costs.
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CIT Group

(CIT) - Get Report

shares hit their highest level since the lender emerged from Chapter 11 bankruptcy protection in December following the release of third quarter earnings that beat analyst estimates.

CIT earned $131.5 million, or 66 cents per share in the third quarter, ahead of the 49 cent analyst consensus, though down from a $171 million, or 85 cent per share gain in the second quarter. CIT shares closed at $42.85, up 5.59% on the day.

CIT benefitted from paying down some of its high cost debt which the company had announced several weeks earlier. Analysts nonetheless were favorably impressed, with a report from Creditsights Tuesday stated that paying the debt down improved margins by 0.23%.

Stifel Nicolaus analyst Chris Brendler also cited good progress in reducing expenses, improving credit quality, and a doubling of loan originations out of CIT's bank.

"They continue to execute very well in attacking the areas they can attack and trying to make as much progress with the regulators as they can," Brendler said.

CIT's bank has been operating under regulatory restrictions since last year and as a result the lender is not able to grow deposits. That means its cost of capital is too high to enable it to lend profitably. Brendler says CIT could be seen as effectively losing money on the new loans it is making, though he believes it is necessary for it to make those loans to preserve client relationships.

"It's a situation that has a ways to go, but I've been impressed throughout the year about how they've been able to make progress on the funding side and in this quarter in particular we saw some progress on the credit costs," Brendler added.


Written by Dan Freed in New York


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