CIT Falls as Lender Disappoints Analysts on Air-Leasing Planby
Lender targets $125 million in cost reductions, 10% return
Ellen Alemany to take over as CEO as John Thain steps down
CIT Group Inc. fell in New York trading after incoming Chief Executive Officer Ellen R. Alemany outlined plans to cut costs and boost the commercial lender’s profitability, while offering little new information on the divestiture of its aircraft leasing business.
CIT dropped 4 percent to $33.24 at 9:53 a.m., the worst performance among the 235 companies in the Russell 1000 Financial Services Index. The shares have tumbled 16 percent this year, compared with the index’s 4.4 percent decline.
CIT will reduce annual operating costs by $125 million over the next two years as it targets a return on tangible common equity of 10 percent, the New York-based bank said Wednesday in a statement. Alemany said in a call with analysts that the firm is still weighing options for the sale or spin off its $10 billion aircraft leasing business, which it has been exploring since October. The bank said it hopes to have a deal completed by year-end.
‘‘There may have been an expectation that CIT would have more concrete plans for the aircraft leasing business to announce,” David Hilder, an analyst at Drexel Hamilton LLC, said in a phone interview. “From the outside, it seems like the preparation work to sell or spin off the commercial aircraft leasing business is taking a lot of time."
Alemany is taking the reins from CEO John Thain as the company’s purchase of OneWest Bank lifts assets above $50 billion, a threshold regulators use for designating systemically important financial institutions that require additional oversight. Even with the divestiture of the Commercial Air unit, CIT’s assets will remain in the mid-$50 billion range and the firm may consider additional sales to drop below the level of regulatory scrutiny, she said on the call.
“As we continue to evaluate the business and execute our strategy, it’s definitely one of the factors we’re going to consider," Alemany said.
Analysts on the call questioned whether the lender’s rail-car leasing unit with $6.7 billion of assets might also be on the block. Alemany said the business’s return on equity is above the company’s target and that selling it wouldn’t free up capital to return to shareholders.
Thain, 60, who rebuilt CIT after the financial crisis, said in October that he was stepping down at the end of this month. He said his job at the lender was “kind of done” and he hoped to retire to spend more time with his granddaughter.