CIT Says Fed Objected to Its Capital Plan

CIT Group Inc. said Thursday that the Federal Reserve had a qualitative objection to its capital plan, while also reporting a sharp drop in quarterly profit tied to its acquisition of OneWest Bank NA.

The bank crossed the $50 billion threshold that subjects it to the regulator stress tests when it bought California lender OneWest Bank, a deal that closed last year. The bank had to submit a capital plan but didn't have to participate in the formal stress-test process this year, so its results weren't disclosed during the release in June. No other U.S.-based bank got a qualitative objection to its capital plans when their results were announced.

In its results Thursday, the lender included a $230 million charge related to a reverse mortgage business that was a part of OneWest. That business is being investigated by the Department of Housing and Urban Development.

CIT lends to the small business, middle market and transportation sectors. It unveiled a turnaround plan in March that involves the firm focusing on domestic banking and getting out of the commercial-air business.

CIT executives are trying to right the bank's course after a number of changes in strategy and leadership over the past year. A major part of the effort is to complete a sale or spinoff of its $11 billion commercial-air business. CIT said the process had advanced to the second round of bidding.

Ellen Alemany officially became CIT's chief executive on April 1 to replace John Thain, who announced his departure in October.

In all, CIT reported a quarterly profit of $14.1 million, or 7 cents a share, down from $115.3 million, or 66 cents a share, a year prior. Earnings from continuing operations, which excludes the reverse mortgage charge, increased to 90 cents a share from 66 cents.

Revenue increased 59% to $645.1 million, driven by higher interest income. Analysts polled by Thomson Reuters expected 77 cents in adjusted per-share earnings on $620.9 million in revenue.

Noninterest income, which for CIT mainly comes from rent charged on operating leases, grew 13% in the quarter to $673.6 million. Interest income grew to $212.8 million from $18.6 million.

Total noninterest expenses increased to $582.9 million from $442.3 million a year prior.

The bank had $283 million in nonaccrual loans, up from $198 million a year prior, but down from $295 million last quarter. Much of the year-over-year increase was due to the energy sector, which has been hurt by low energy prices. The provision from credit losses was $28 million, up from $18 million last year, but down from $99 million last quarter.

Write to Austen Hufford at [e-mail] and Rachel Louise Ensign at [e-mail]

(END) Dow Jones Newswires

July 28, 2016 10:15 ET (14:15 GMT)

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