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CIT AT A GLANCE

P/E ► -0.232   EV/EBITDA ► -90.3   ROA ► -0.6% AVG ROE ► -43.2% LOW Debt to Equity ► 10.7 AVG Current Ratio ► 0   Interest Coverage Ratio ► -0.296 LOW

 

 

 

 

 

 

On the big business landscape for about a century, CIT Group is a commercial finance firm offering lending, leasing, and advisory services to middle-market companies and more than half of the RUSSEL1000 in the energy, health care, communications, retailing and entertainment industries. ^[1] It's financial services include debt restructuring and equipment financing to the transportation (particularly aerospace and rail), and manufacturing industries. Its real estate services include mortgage debt, mezzanine debt, and net lease financing. CIT Group was number 335 on the FORTUNE 500 list in 2007, has more than $70 billion in managed assets and serves 1 million clients in more than 50 countries around the world.^[2]

CIT generates revenue by earning interest income on the loans it provides, collecting rentals on the equipment it leases, and earning fees on the financial services it provides. In addition, it syndicates certain financial receivables and equipment. The company seeks to mitigate losses and diversify risk by spreading its business around the globe, and it primarily focuses on firms in the middle market. It concentrates its business on the manufacturing, transportation, retailing, wholesaling healthcare, communications, energy and service-related industries, as well as the education and home mortgage lending markets.^[3]

The company has taken steps to increase its third-party assets under management and thereby increase fee-based revenues. Its goal is to increase its origination capabilities and drive non-spread revenues. The first move in this initiative was its May 2007 CLO I origination, which includes middle-market loans originated by CIT as well as third parties. The company then closed the IPO of Care Investment Trust, a REIT formed to invest in health care-related commercial mortgage debt and real estate. It used the proceeds of its offering to purchase a portfolio of health care-related mortgage assets from a CIT subsidiary, and the portfolio is externally managed by CIT Healthcare LLC, a wholly owned subsidiary. As a result of its efforts toward broadening its business base, CIT earned a BBB+/Negative/A-2 credit rating from Standard & Poor’s as of year end 2008.

In November, CIT applied to the Federal Reserve to become a bank holding company. CIT ran out of cash during the year because of operational constraints and reduced earnings from lending and leasing. CIT is one of several financial companies that relied on securitization, commercial paper and other sources of borrowing to get money to lend to customers. But this shadow banking system has been crushed this year by a wave of de-leveraging. CIT is now turning itself into a bank so that it can collect deposits, which are considered a more dependable source of financing. CIT Bank, a Utah-based unit of CIT, filed to convert its charter from an industrial bank to a Utah State Bank. ^[4] On December 22, it won the Federal reserve approval to convert to a bank holding company, a step toward getting an investment of as much as $2.5 billion from the U.S. government. This resulted in its stock climbing 10.1% to $3.70 on the same day. ^[5] Analysts prdict that bank holding company status will provide increased access to funding and a new platform from which CIT will serve its middle-market and small-business clients.^[6]

Business Overview

The Group's principal activity as a global commercial and consumer finance company is to provide financing and leasing capital for consumers and companies in the different industries mentioned above. It offers vendor, equipment and commercial finance products, factoring, home lending, small business lending, student lending, structured financing products, and commercial real estate financing as well as mergers and acquisitions and management advisory services. The Group operates in North America, Europe, Latin America and Asia pacific region. In 2007, the Group acquired Barclays U.K. and German vendor, CitiCapital U.S. business technology finance unit , Edgeview Partners M&A Advisory. In 2007, it disposed Construction finance, Home Lending assets, Systems leasing and DFS equity. ^[7]

The company sources its loans through direct marketing efforts through referral sources and other channels to borrowers, lessees, manufacturers, vendors, distributors and end users. It also buys and sells participations in syndications of finance receivables and lines of credit and may buy or sell finance receivables on a whole-loan basis. In addition, it provides collection and servicing operations. Revenue is primarily generated through interest income from loans on the balance sheet, rental fees from the equipment it leases, and fee and other income for services. It may also syndicate and sell receivables and equipment to leverage its origination capabilities and manage its balance sheet.

CIT aims to meet customer needs through two groups of businesses, including five business segments. Its Commercial Finance Group includes corporate and transportation finance operations, and its Specialty Finance Group offers trade and vendor finance, as well as consumer and small business lending. At December 31, 2007, the company had managed assets of $83.2 billion, comprised of a loan and lease portfolio of $76.9 billion and a securitized portfolio of $6.3 billion. It also serviced more than $6 billion in third-party assets under fee-based contracts at year end.

                                                                    *The Segmentation and International Nature of CIT Group

Business and Financial Metrics

Financial Discussion: Because it is particularly vulnerable to cyclical industries like transport and housing, CIT has seen a drop in its revenues from lending in 2008. The economic recession has hurt many of the industries it serves, and continues to have devastating effects on CIT's business as firms are unwilling to borrow, and tighter conditions are placed on lenders.

1Q08 Financial Discussion:

In the first quarter between December 31, 2007 and March 31, 2008, CIT's Total Assets increased by $5.1 billion from $90.6 billion to $95.7 billion. It also had a $7.4 billion increase in Total Debt from $71.1 billion to $78.4 billion. But most importantly, it realized a steep decline in Total Revenue from a total of $737.4 million in the first quarter of 2007 to $2.3 million in the same period in 2008(a decrease of $735.1 million). This all culminated in a $257.2 million loss for the first quarter, which translates into a $1.35 loss per share ^[8]

2Q08 Financial Discussion:

Between March 31, 2007 and June 30, 2008, CIT's Total Assets decreased by $7.9 billion from $95.7 billion to 87.8 billion. Total Debt decreased from $78.4 billion to $67.9 billion. CIT also had a drop in Total Revenue with $398.7 million in revenue in the second quarter compared to $887.4 million during the same period in 2007. ^[9] CIT, whose lending operations depend on its ability to win short-term financing, nearly suffocated from lack of access to funding in March after losses caused by bad home and student loans raised concerns that the company faced bankruptcy. The company drew down $7.3bn in emergency lines of credit and pledged to sell assets to meet funding requirements. ^[10] It closed the quarter with a Net Loss of $2,084.4 million.

3Q08 Financial Discussion:

Between June 30, 2007 and September 30, 2008, CIT's Total Assets decreased to $80,845.3 million. Total Debt decreased to $65,664.3 million. CIT's Total Revenue was $282.3 million for the quarter, and Net Loss was $317.3 million. ^[11].

4Q08 Financial Discussion:

On December 23, CIT was granted preliminary approval to receive $2.33 Billion in government investment under the Treasury Department's Troubled Assets Relief Program (TARP). ^[12] On December 24 CIT announced that it had generated $1.15 billion of regulatory capital through a note exchange, and about $547 million in cash will be paid on settlement of the notes exchange offer. The exchange was undertaken as part of the cash-strapped commercial lender's effort to become a bank-holding company and tap federal funds.^[13]

Business Segments ^[14]

Shares in CIT Group surged more than 20 per cent on June 31st 2008 after the lender agreed to sell its home lending business and manufactured housing portfolio for $1.8bn, returning to its roots as a purely commercial finance company. ^[15] It has a highly-skilled team of professionals understands not only the finance industry but any industry. Its global experience in providing business finance solutions gives CIT the strength and experience to provide businesses with appropriate financing services.

                                                                              *Revenue Contributions by Segment|center

Corporate Finance

With more than $20 billion in managed corporate assets, CIT Corporate Finance Services & Solutions offers a wide array of financial solutions for middle-market clients. It provides lending, leasing and other financial and advisory services and solutions to middle-market companies, including those in industries such as healthcare, energy, and communications, media and entertainment. A broad suite of corporate financial solutions, from equipment financing, debt restructuring, and project financing to commercial real estate and M&A advisory services is offered. The Corporate Finance arm is divided into the sectors named and described below:

• CIT Commercial & Industrial provides senior debt solutions for middle-market companies. Our loans of $20 million to $1 billion are based on asset-based, enterprise value and cash flow formulas.
• CIT Capital Markets provides product expertise to appropriately structure & price corporate financial transactions, raising capital for our clients and ensuring timely distribution of these transactions to investors.
• CIT Investment Banking Services provides a full spectrum of advisory and underwriting capabilities to leading middle market companies.
• CIT Communications, Media, & Entertainment provides comprehensive financing solutions to broadcasting, publishing, security, information services, gaming, sports, entertainment and communications companies.
• CIT Energy provides corporate advisory, underwriting, financing and investment solutions to companies throughout the energy and power sectors.
• CIT Healthcare provides financial solutions and advisory services to the domestic healthcare middle market. We meet the diverse commercial financing needs of U.S. healthcare providers.
• CIT Small Business Lending has been designated a "Preferred Lender" by the SBA due to its strong corporate financing record with authority over loan approvals, closings, servicings and liquidations.
• The Syndicated Loan Group's mission is to centralize CIT corporate investments in par bank loan participations and establish a first-class distressed debt platform.

Transportation Finance

CIT Transportation Finance specializes in providing customized leasing and secured financing, primarily to end-users of aircraft, locomotives and railcars. The transportation equipment financing services include operating leases, single investor leases, equity portions of leveraged leases and sale and leaseback arrangements, as well as loans secured by equipment. Equipment financing clients represent major and regional airlines (United States and International), North American railroad companies, and middle-market to larger-sized companies.

• CIT Aerospace covers aircraft leasing and financing to military transport funding
• CIT Rail's specialty is to combine CIT's freight transportation equipment knowledge, financing structuring expertise and access to capital markets to tailor transportation solutions that can free up capital and unlock new growth potential.

Vendor Finance

CIT Vendor Finance provides sales aid financing for manufacturers and distributors and lease financing directly to end-user customers around the globe. We are a leading provider of global vendor finance programs, with active relationships among top players in industries such as healthcare, printing, technology, office products and other diversified industries.

CIT is a leading provider of global vendor financing solutions:

Customers in over 30 countries Pan-European servicing platform Largest foreign-owned leasing company in China

• CIT Vendor Finance, Diversified Industries, provides financing to help manufacturers and dealers in North America and around the world to increase sales, without the cost associated with an in-house financing operation, while minimizing exposure and investment requirements.
• Global Major Relationships designs, implements and manages customized financing solutions to aid in the sales of products for global vendors. We specialize in forming structured multi-country financing relationships with industry-leading manufacturers, distributors, software vendors and service providers worldwide.
• CIT Vendor Finance, Technology and Office Equipment, works with leading hardware, software, office product and telecommunications manufacturers, distributors and VARs (Value-Added Resellers). Our leasing solutions help them capture incremental revenue at higher margins, win more deals and close them faster, while reducing the administrative burden of maintaining an in-house leasing capability.

Basically, the Vendor Finance segment of the company serves to provide factoring, credit protection, lending, receivables management and other trade products for retail supply chain companies. ^[16]

Trade Finance

Through CIT Commercial Services' domestic and international credit protection, factoring and financing services, we tailor financial solutions that help consumer products businesses of all sizes to increase sales, improve cash flow, reduce operating expenses, and eliminate customer credit losses.

Sectors:

• CIT Commercial Credit provides asset-based loans of $3 million to $20 million to mid-sized businesses with annual sales of $100 million or less. We help companies maximize liquidity through all phases of the business cycle with appropriate commercial credit.

• CIT Commercial Services is a leading provider of factoring services, credit protection, accounts receivable management, lending services and other kinds of trade finance products to consumer products businesses that sell to retail channels of distribution.

• Commercial Services International provides a full range of import and export factoring services for companies selling to retail. Our offices in Asia and Germany work closely with companies in those regions, providing factoring services for credit protection for domestic and international sales.

In summary, the Trade Finance segment provides innovative financing and leasing solutions to manufacturers, distributors, and customer end-users around the globe. ^[17]

Consumer Banking - CIT Bank

CIT Bank is an Industrial Loan Corporation (ILC) chartered by the state of Utah and regulated by the state of Utah and the FDIC. CIT Bank has a separate, independent Board of Directors and state banking charter that guide its activities. CIT Bank is able to raise deposits to fund its lending activities, generally by issuing CDs through various investment channels. Under the Commercial Lending Program arranged by CIT with CIT Bank, CIT Bank will work with the various commercial finance units within CIT to fund loans into the CIT Bank portfolio via CIT Bank’s deposit generation model. CIT Bank is FDIC insured. CIT Bank provides customers with CITCustomerEdge for 24/7 access to your account information, payment options, frequently asked questions and other useful features.

Insurance Services

CIT Insurance Services provides insurance and financial protection products to individual and business clients of CIT. Our capabilities are augmented by partnerships with insurance carriers, brokers and other third parties. Business insurance services and personal insurance provide protection and security. The insurance services offerings include products for individuals, in addition to offerings of middle-market and small business insurance services.

Key Trends and Forces

The ability to raise Debt or equity Capital may be limited (Lack of liquidity)

CIT relies on access to the capital markets to provide sources of liquidity and to fund asset growth. These markets have exhibited heightened volatility and reduced liquidity. Recently, liquidity in the capital markets has been more constrained and interest rates available have increased significantly relative to benchmark rates. As a result, the cost of funds has increased and they have shifted funding sources primarily to asset-backed securities and other secured credit facilities, rather than unsecured debt securities. Adverse changes in the economy, long-term disruption in the capital markets, deterioration in business performance or downgrades in credit ratings could limit their access to these markets or increase their cost of capital.

A Deterioration in Economic Conditions that is General or Specific to Industries, Products or Geographies.

A recession or downturn in the U.S. or global economies or affecting specific industries, geographic locations and/or products could make it difficult for CIT to originate new business, given the resultant reduced demand for consumer or commercial credit. In addition, a downturn in certain industries may result in a reduced demand for the products that they finance in that industry or negatively impact collection and asset recovery efforts.

Significant changes in interest rates.

Significant increases in market interest rates, or the perception that an increase may occur, could adversely affect both the ability to originate new finance receivables and the profitability of CIT. Conversely, a decrease in interest rates could result in accelerated prepayments of owned and managed finance receivables.

Adverse or Volatile Market Conditions may Reduce Fees and other Income

In 2005, CIT began pursuing strategies to leverage our expanded asset generation capability and diversify its revenue base to increase other income as a percentage of total revenue. It invested in infrastructure and personnel focused on increasing other income in order to generate higher levels of syndication and participation income, advisory fees, servicing fees and other types of fee income. These revenue streams are dependent on market conditions and, therefore, can be more volatile than interest on loans and rentals on leased equipment. Current market conditions, including lower liquidity levels, have had a direct impact on syndication activity, and have resulted in lower fee generation Continued disruption to the capital markets, or the failure to implement these initiatives successfully, or the failure of such initiatives to result in increased asset and revenue levels could adversely affect CIT’s financial position and results of operations.

Investment in, and Revenues from Foreign Operations have the Risk associated with transacting in a Foreign country

An economic recession or downturn, increased competition, or business disruption associated with the political or regulatory environments in the international markets in which we operate could adversely affect us. Foreign countries have various compliance requirements for financial statement audits and tax filings, which are required to obtain and maintain licenses to transact business

Competition

CIT's markets are highly competitive, based on factors that vary depending upon product, customer, and geographic region. It's competitors include captive and independent finance companies, commercial banks and thrift institutions, industrial banks, leasing companies, insurance companies, hedge funds, manufacturers, and vendors. Many bank holding, leasing, finance, and insurance companies that compete with them have formed substantial financial services operations with global reach. On a local level, community banks and smaller independent finance and mortgage companies are competitive with substantial local market positions. Many of their competitors are large companies that have substantial capital, technological, and marketing resources. Some of these competitors are larger than them and may have access to capital at a lower cost than CIT. The markets for most of their products have a large number of competitors.

They compete primarily on the basis of financing terms, structure, client service, and price. From time to time, their competitors seek to compete aggressively on the basis of these factors and therefore they may lose market share to the extent they are unwilling to match competitor product structure, pricing or terms that do not meet their credit standards or return requirements. Other primary competitive factors include industry experience, equipment knowledge, and relationships. In addition, demand for an industry’s services and products and industry regulations will affect demand for our products in some industries. ^[18]

• • • General Electric Commercial Finance(GECF) is a part of General Electric Capital(GEC). Therefore figures indicated are for GEC.

Citigroup (C) - This is the Citi. One of the largest financial services firms known to man, Citigroup (aka Citi) has some 3,000 bank branches and consumer finance offices in the US and Canada, plus more than 2,000 additional locations in about 100 other countries. The first US bank with more than $1 trillion in assets, Citigroup offers deposits and loans (mainly through Citibank), investment banking, brokerage, wealth management, alternative investments, and other financial services. Former CEO Chuck Prince resigned in 2007 as Citigroup deals with some $60 billion in writedowns and losses on mortgage-related securities and other investments.

General Electric Capital/GE Commercial Finance - GE Commercial Finance offers lending, leasing, and other financing to businesses in some 35 countries. It provides capital for a variety of assets, including industrial facilities and equipment; commercial and residential real estate; and corporate aircraft and vehicles. It also develops private-label financing programs for vendors, provides revolving credit and factoring, and makes equity investments in various industries. One of the most profitable units of sprawling conglomerate General Electric, GE Commercial Finance focuses on middle-market companies, although clients range from small businesses to FORTUNE 100 firms.

Orix Corporation - An international financing leviathan, ORIX is one of Japan's largest public financial services firms. The company finances leases of everything from computers and measuring equipment to aircraft and ships. ORIX also engages in consumer and corporate finance, life and other insurance, mortgage loans, venture capital, brokerage services, facilities management, car rental, and property development and management services in Japan and more than 20 other countries. The company operates around 1,200 offices in Japan (where it earns more than 80% of its revenues) and 260 more overseas. ORIX even has its own professional baseball team, the Kobe-based ORIX Buffaloes.

Advanta (ADVNA) - Advanta gives small business owners credit. Through Advanta Bank Corp. the company is one of the nation's largest issuers of MasterCard business credit cards to small businesses and professionals (to a lesser extent, it issues Visa business cards as well). The bank also offers deposit products and online banking. To grow its customer base, Advanta markets its cards through direct mail, telemarketing, and the Internet. The company operates two insurance subsidiaries, Advanta Insurance and Advanta Life Insurance, that offer specialty credit-related insurance and other ancillary products to existing customers.

Deutsche Bank AG (DB) - One of the largest banks in the world, Deutsche Bank offers retail banking services in Germany; its investment bank and asset management business spans Europe, the Pacific Rim, and the Americas. The bank's three operating segments are Corporate and Investment Banking, Private Clients and Asset Management, and Corporate Investments. It has around 1,900 locations worldwide, more than half of those in Germany. As part of its focus on domestic retail banking, Deutsche Bank acquired Bankgesellschaft Berlin AG, the parent of Berliner Bank, and norisbank to expand at home. In the US Deutsche Bank owns brokerage and investment bank Deutsche Bank Securities and asset manager DWS Investments (formerly DWS Scudder).

HSBC Finance - HSBC Finance (formerly Household International) is the consumer lending arm of gigantic British bank HSBC Holdings. The company caters to middle-class clients in the US, with a focus on serving customers with less-than-stellar credit. Its offerings include home mortgages, automobile loans, and personal loans; the company's subprime mortgage lending business has about 1,000 offices in more than 45 states. HSBC Finance also issues Visa, MasterCard, American Express, and Discover credit cards, as well as private-label cards for third parties such as General Motors and the AFL-CIO. It also sells specialty insurance

ILFC - John Travolta bought his own Boeing; if your cash flow is more limited, International Lease Finance Corporation (ILFC) would be glad to lease you one. The company, which leases the entire range of Boeing and Airbus commercial aircraft, lays claim to being the largest lessor of new aircraft and the largest lessor of widebody aircraft in the world. It also boasts of owning the world's most valuable fleet -- reportedly more than 900 planes -- of leasable aircraft. High-rollers and movie stars aside, commercial airlines outside the US account for most sales; ILFC counts about 145 airlines as customers. ILFC is a subsidiary of insurance firm American International Group, which is selling it.

J P Morgan Chase (JPM) - JPMorgan Chase was born with a silver spoon in its mouth but hasn't let that stop it. The #3 financial services firm in the US behind Citigroup and Bank of America is keen on its retail operations (more than 3,000 bank branches and growing) and is also among the nation's top mortgage lenders, automobile loan writers, and credit card issuers. It also boasts formidable investment banking and asset management operations. The company's subsidiaries include the prestigious JPMorgan Private Bank and institutional investment manager JPMorgan Asset Management (with $1.6 trillion in assets under management). In 2008 JPMorgan Chase bought Bear Stearns and followed that up with Washington Mutual.

Merrill Lynch (MER) - Merrill Lynch (known as "The Bull") provides investment banking and brokerage services to retail institutional, and government clients. The company operates in two segments: Global Investment Management (institutional investors and governments) and Global Wealth Management (private clients and small businesses). The company also owns 49% of asset manager BlackRock, which absorbed Merrill Lynch's Investment Managers division, uniting Merrill's equity and mutual fund offerings and BlackRock's fixed-income prowess. Taking "The Bull" by the horns, Bank of America arranged to buy Merrill Lynch for some $50 billion in stock in September 2008.

National City (NCC) - National City wants customers to think nationally, bank locally. One of the top banks in the US, National City operates about 1,300 bank branches in Ohio, Florida, Illinois, Indiana, Kentucky, Michigan, Missouri, and Pennsylvania. Besides retail and corporate banking services, National City offers retail banking, corporate and small business banking, wealth management services, and mortgage banking. Its National Consumer Finance segment, which includes subsidiary National City Mortgage, originates and services consumer and housing loans. The company focuses on direct services, in which it has personal relationships with customers. Rival PNC plans to buy National City for some $5.6 billion in cash and stock.

References

1. ↑ CIT 2007 Annual Report
2. ↑ CNN Money Fortune 500 Companies
3. ↑ Standard and Poor's Outlook
4. ↑ MarketWatch News
5. ↑ MarketWatch News
6. ↑ Bloomberg News
7. ↑ Wright Investors Service Report
8. ↑ CIT Group Inc Quarterly Report Online
9. ↑ CIT Form 10-Q
10. ↑ Financial Times Report
11. ↑ Yahoo Finance:CIT Group Inc
12. ↑ Wall Street Journal Article
13. ↑ Barrons CIT Article
14. ↑ CIT Products and Services
15. ↑ Financial Times: CIT quits home loans in $1.8bn deal
16. ↑ CIT 2007 Annual Report
17. ↑ http://ccbn.mobular.net/thomson/7/2603/3093/ CIT 2007 Annual Report]
18. ↑ CIT General Information
19. ↑ AOL Money and Finance
20. ↑ Hoovers
21. ↑ CitiGroup 2007 Form 10-K
22. ↑ Hoovers Fact Sheet: CitiGroup
23. ↑ Hoovers Fact Sheet: GECF
24. ↑ Orix Corporation 2007 Annual eport
25. ↑ ADVNB 2007 Form 10-K
26. ↑ DB 2007 Annual Report
27. ↑ HSBC Finance Form 10-K
28. ↑ Hoovers Fact Sheet: HSBC Finance
29. ↑ ILFC Annual Report
30. ↑ JP Morgan 2007 Form 10-K
31. ↑ Hoovers Fact Sheet: JP Morgan
32. ↑ ML 2007 Annual Report
33. ↑ National City, Investor relations, Filings
34. ↑ Hoovers Fact Sheet:National City
35. ↑ Hoovers Fact Sheets