American International, CIT Both Top Estimates - TheStreet

American International, CIT Both Top Estimates

AIG capitalizes on higher premiums, while CIT mines the spread.
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Two financial services companies,

American International Group

(AIG) - Get Report

and

CIT

(CIT) - Get Report

, posted higher second-quarter profit Thursday, with both exceeding Wall Street expectations.

AIG, the big insurer, earned $2.28 billion, or 87 cents a share, compared to $1.8 billion, or 68 cents a share, a year earlier. Earnings were fueled by price hikes in insurance premiums to businesses and the effects of a weak U.S. dollar overseas, which helped the company's foreign life insurance division.

Premium hikes have been a big driver in earnings at AIG and other commercial insurers for the past few quarters.

On an operating basis, which excludes losses on investments, AIG earned 96 cents a share, which beat the Thomson First Call estimate of 94 cents a share.

CIT, the New Jersey-based middle-market lender, earned $136.9 million, or 65 cents a share, compared to a loss of $1.99 billion a year ago, when it was still part of Tyco International.

The commercial finance firm, which on Wednesday named former Credit Suisse First Boston executive Jeffery Peek as its new its new president and chief operating officer, beat the First Call consensus estimate by 4 cents. Peek is seen as the likely successor to CIT's longtime Chief Executive Albert Gamper.

Net finance income at CIT rose 3% from the end of the first quarter to $612 million, but declined 6% from the year ago period.

More importantly, CIT's net finance margin rose in the quarter to 3.80% from 3.63% at the end of the first quarter, as the firm was able to lower its borrowing costs in the quarter. Like most financial firms, CIT makes most of its money off the difference between its borrowing costs and the interest it charges customers.

CIT also reported improvement in the level of bad loans and other assets in its portfolio. It reported that the dollar value of nonperforming assets were $941 million in the quarter, down from $1 billion in the first quarter and $1 billion last year.

A decline in bad loans and assets is a trend that's been seen this quarter at several big commercial banks, and is a sign that the financial firms may have weathered the worst of the bad credit cycle.