Battered CIT returns to profitability

By Catherine Clifford, staff reporter


NEW YORK (CNNMoney.com) -- In its first full quarter since emerging from a whirlwind trip though bankruptcy, CIT Group returned to profitability.

The newly restructured CIT (CIT, Fortune 500), now led by former Merrill Lynch CEO John Thain, on Tuesday reported net income of $97 million for the quarter ended March 31, breezing past analyst forecasts. Revenue for the quarter was $588 million.

But recapturing its former position as a key Main Street commercial lender won't be fast or easy for CIT. Some of CIT's operations are hamstrung as it works to rebuild.

Analysts' primary concern is how CIT will get capital to restart its lending business. Right now, most access routes are blocked off.

Battered by losses and debt, CIT filed for bankruptcy in November, wiping out its creditors and stakeholders -- including the U.S. Treasury, which sank $2.3 billion into CIT as part of the federal government's Wall Street bailout.

CIT emerged from the bankruptcy just 38 days later, with a new management team and a fresh start on its accounting. But debt from the "new" CIT doesn't yet have an investment rating, making it hard to sell on the open market. CIT has a retail banking operation based in Utah, but that bank is currently under a "cease and desist" order from state regulators that limits its ability to accept deposits and extend credit.

"We are working on improving our relationships with the Fed and the FDIC and the Utah regulators," Thain said Tuesday on a conference call with analysts. "This is going to be a long process."

The New York City-based lender's top priority is to get out from under its remaining high-interest debt load. "Clearly, the expensive debt and the high cost of liquidity we are carrying is very burdensome," Joe Leone, CIT's CFO, said on the call. "It is obvious why prepaying the high-cost debt is one of our highest priorities." CIT will to pay down another $1.5 billion in debt "very soon," Leone said.

Small biz lending still slow: CIT was traditionally the nation's top issuer of loans backed by the Small Business Administration, a key credit lifeline for new and growing small companies. Those loans dried up last year as CIT struggled for survival.

In December, one of CIT's first post-bankruptcy moves was to announce plans to pump $500 million into SBA-backed lending in 2010.

If CIT still wants to meet that goal, it'll have to step up the pace fast. The company's lending actually slowed down after its exited bankruptcy, SBA data shows. CIT made 39 SBA-backed loans totaling $27.8 million in the last three months of 2009, but originated only 24 SBA loans totaling $19.4 million in the first quarter of 2010, according to the agency.

On Tuesday's conference call, Thain said that small business lending demand is on the rise, with applications up 70%. Credit conditions are also improving: "Delinquencies, quarter-over-quarter, improved. Charge-offs were significantly lower," he said.

To woo potential borrowers, CIT is currently waiving its usual $1,000 packaging fee on all approved SBA loans. Initially scheduled to end March 10, that deal has been extended through May 31.

CIT's overall new loan and lease volumes declined "modestly" last quarter compared to the prior one, to $900 million, the company said Tuesday in its earnings release.

Factor financing shrinking: CIT is also facing volume declines in another key business line, factor financing.

Popular in the retail field, factoring allows manufacturers to sell their accounts receivable to a factor, typically for 70 to 90 cents on the dollar. The move gives suppliers an immediate cash infusion and lets them pass on the administrative work of collecting payments from customers. CIT is one of the nation's largest factors, and continued operating that business as usual during its bankruptcy.

But the gravy days are gone. The new CIT expects to do about half the factoring volume it did before its bankruptcy, CFO Joe Leone said Tuesday.

"We were probably doing $40 billion of factoring volume, and you can probably see from the numbers we're going to average somewhere in the high 20s this year," Leone said. "The nature of the business has changed, and the business is a little smaller than it was." To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Questions & Answers



QHow does a florist sell more in this economy? We changed our business to designing weddings and events only, as the everyday flowers are not selling. We had to throw out too much product at the end of the week -- flowers are perishable! More
Get Answer
- The Flower Lady, Suwanee, Ga.
Overnight Avg Rate Latest Change Last Week
30 yr fixed4.28%4.30%
15 yr fixed3.24%3.18%
5/1 ARM3.41%3.53%
30 yr refi4.19%4.22%
15 yr refi3.18%3.12%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:

Sections

U.S. food chains are constantly looking for ways to appeal to local tastes -- think red bean Frappucinos and mango pizza. More

The Heartbleed bug is to blame for the hospital hack that stole 4.5 milliion patient records. If true, brace yourself for similar, mega data breaches. More

This Canadian startup founder faced the threat of deportation because he was on the wrong visa. Problem is -- there's no startup visa for entrepreneurs. More

This month, Delaware became the first state to pass a law giving heirs the right to access the online accounts and assets of someone who has passed away. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.