CIT Climbs After $10 Billion Deal to Sell Aircraft-Leasing Unitby
Lender approved to return $3.3 billion to shareholders
Deal shows Fed ‘willing to reward banks’ for simplifying: an
CIT Group Inc. rose in New York trading after agreeing to sell its aircraft-leasing business to China’s HNA Group for $10 billion and saying it plans to return some of it to shareholders.
The commercial lender climbed 3.5 percent to $37.68 at 9:35 a.m., the best performer in the Russell 1000 Financial Services Index and the most intraday since Aug. 17. The stock had declined 8.3 percent this year through Thursday.
The Federal Reserve didn’t object to the bank plan to return $3.3 billion from the sale’s proceeds to investors, the New York-based bank said late Thursday in a statement. The aircraft-leasing unit comprised about 23 percent of the bank’s assets and the $10 billion price represents a premium of 6.7 percent, according to the statement.
“The transaction represents a significant milestone in the company’s efforts to focus itself on middle-market commercial lending,” said Eric Wasserstrom, an analyst at Guggenheim Securities LLC who has a neutral rating on the stock. “The Fed approval removes ambiguity about the potential use of capital and is likely a positive catalyst for the shares.”
The deal is “definitely accretive” to CIT’s value to shareholders, Chief Financial Officer Carol Hayles said on a conference call after the announcement. Whether the sale adds to earnings per share depends on how much of its own stock the company repurchases, she said. The acquisition is scheduled to be completed in the first quarter pending approval from regulators and shareholders.
Even with the divestiture of the commercial air unit, CIT’s assets will remain in the mid-$50 billion range, a threshold regulators use for designating systemically important financial institutions that require additional oversight, CIT’s Chief Executive Officer Ellen Alemany said in March. The firm may consider additional sales to drop below the level of regulatory scrutiny, she said at the time.
CIT’s sale “shows that the Fed is willing to reward banks for simplifying their businesses,” said Chris Kotowski, an analyst at Oppenheimer & Co. who has an outperform rating on the stock. “The CIT aircraft transaction to our minds shows that it is possible to restructure and simplify banks to shareholders’ benefit.”
Kotowski said CIT should remain “substantially overcapitalized,” even with the returns to shareholders. “Further capital returns are possible in 2017 and beyond,” he wrote in a note to clients.