CIT Group Inc.
) reported its first-quarter 2012 loss of $2.22 per share, much
more than the Zacks Consensus Estimate loss of $1.54. The company
had reported earnings of 22 cents in the prior quarter and 33 cents
the prior-year quarter.
Negative net revenue, higher interest expenses and increase in
operating expenses negatively impacted CIT's quarterly results.
However, continuously improving credit quality and stable capital
ratios were the positives.
CIT recorded a net loss of $446.5 million in the quarter under
review compared with a net income of $43.6 million in the preceding
quarter and net income of $65.6 million in the year-ago
Behind the Headline
On a non-GAAP basis, CIT reported negative total net revenue of
$116.9 million compared with positive net revenue of $305.8 million
in the previous quarter and $459.3 million in the prior-year
quarter. Negative net finance revenue was the primary reason for
the company's negative revenue in the quarter. Moreover, net
revenues were nowhere near the Zacks Consensus Estimate of $1,047.0
CIT's net interest revenue in the first-quarter was negative
$668.1 million compared with negative $194.1 million in the prior
quarter and negative $59.8 million in the year-ago quarter. A much
lower total interest income more than offset the increase in total
interest expenses. The major reason for the higher interest
expenses was the redemption of nearly $6.5 billion of high cost
debt by CIT during the quarter.
Net finance revenue as a percentage of average earning assets
(excluding fresh start accounting and debt prepayment penalties)
deteriorated 10 basis points (bps) sequentially but improved 56 bps
year over year to 1.97%. The rise was driven by lower funding
Considering restructuring charges of $5 million in the reported
quarter, operating expenses stood at $223 million. Excluding these
charges, operating expenses increased 1% sequentially and 10% from
the prior-year quarter, driven by higher compensation costs partly
offset by lower professional fees.
CIT's credit quality continued to improve during the
first-quarter with almost all the major metrics declining. Net
charge-offs (NCOs) were $22 million, down from $24 million in the
prior quarter and $140 million in the prior-year quarter. The
reduction was driven mainly by a decline in NCOs in Corporate
Finance. NCOs as a percentage of average finance receivables
decreased 3 bps sequentially and 190 bps year over year to
CIT's non-accrual loans dropped 31% sequentially and 63% year
over year to $482 million. Non-accruing loans as a percentage of
finance receivables slipped 118 bps sequentially and 314 bps year
over year to 2.35%.
Further, with continued reduction in specific reserves and
improved portfolio credit quality, provision for credit losses was
a benefit of $42.6 million compared with $15.8 million in the last
quarter and $122.4 million in the prior-year quarter.
Balance Sheet and Capital Ratios
As of March 31, 2012, cash and short-term investment securities
were $7.3 billion, consisting of $6.3 billion of cash and $1.0
billion of short-term investments.
CIT continues with its restructuring initiatives to lower its
cost of capital and improve profitability. Since January 2010, the
company has eliminated or refinanced over $23.5 billion of high
cost first and second lien debt. This consists of $7.5 billion of
first lien debt, its entire $12.3 billion of Series A notes, $2.1
billion of Series B notes and $1.6 billion of Series C notes.
Additionally, on April 2, CIT announced that it would redeem
$500 million of its 7% Series C Notes maturing in 2017 on May 2,
2012. Following the completion of this redemption, nearly $6.7
billion of debt would be left pertaining to the Series C notes in
the company's balance sheet along with unsecured revolving credit
Capital ratios were stable as of March 31, 2012, with a Tier 1
capital ratio of 17.6% and a total capital ratio of 18.5%, both
down from the prior quarter end. Book value per share was $42.09 as
of March 31, 2012 compared with $44.30 as of December 31, 2011.
We expect CIT's initiatives to restructure its balance sheet as
well as repay and refinance its costly debt will not only bring
down the funding costs, it would also lead to an improvement in its
net interest margin and profitability. Also, bringing down the cost
of debt will help CIT to be flexible in providing much needed
financing to the small and mid-sized organizations. Moreover, the
company is also poised to benefit from its strong capital and
However, sluggish growth across the economy could mar the
company's growth prospects. Furthermore, CIT will have to focus on
the top-line improvement; otherwise, its bottom line will continue
to remain under pressure.
One of CIT's peers,
) is scheduled to announce its first-quarter results on April
CIT currently retains a Zacks #3 Rank, which translates into a
short-term 'Hold' rating.
CIT GROUP (
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