NEW YORK — Rising volume from new business and improved credit quality across the board helped push CIT Group Inc. to healthy earnings during the fourth quarter.
This story first appeared in the January 27, 2004 issue of WWD. Subscribe Today.
Despite higher charge-offs, the company said delinquencies and nonperforming assets had declined to their lowest levels since 1999, a solid indication of a strengthening economy. “The improvements from the prior quarter were across all segments,” said the company in a statement.
For the three months ended Dec. 31, the Livingston, N.J.-based finance giant said earnings rose 9.8 percent to $155.2 million, or 72 cents a diluted share, in line with Wall Street’s consensus estimate. Comparatively, the firm reported earnings of $141.3 million, or 67 cents, in the year-ago quarter. Finance income declined 4.7 percent to $925.9 million from $971.7 million.
A $50.4 million pretax gain, translating into an aftertax benefit of 14 cents a diluted share, related to the call of $735 million in debt, was offset by the company’s decision to sell its direct investment venture capital portfolio to Protostar Equity Partners. The sale resulted in a pretax write-down of $63 million, or an aftertax charge of 18 cents a share.
The company’s commercial finance division, which houses one of the largest and oldest factoring firms in the country, helped give overall earnings a shot in the arm. Pretax income from the unit rose 7.8 percent to $95 million from $88.1 million. Volume from new business spiked 14 percent during the quarter to $637 million from $559 million.
A substantial portion of the rise in volume can be attributed to CIT’s aggressive acquisition campaign. Growth through acquisition has been a key issue for CIT and the factoring industry as a whole. On Dec. 31, as reported, CIT announced it had fully acquired HSBC Bank’s domestic factoring assets, valued at about $1 billion before accounting for assumed liabilities. Net assets acquired totaled approximately $270 million, the firm said. According to industry observers, the HSBC acquisition will contribute about $7 billion in annual volume.
“This transaction reflects CIT’s corporate strategy to pursue growth opportunities that are synergistic with our core business lines and meet our return on equity targets,” said CIT chief operating officer Jeffrey Peek in a statement at the time.
Buzz surrounding CIT’s targeting of HSBC picked up steam among industry insiders after CIT acquired $446 million of GE Commercial Services’ domestic factoring assets in September.
CIT commercial finance handles an estimated $20 billion in annual volume. The firm’s clients range from small companies with $2 million in annual sales to publicly held corporations with $500 million in revenue. The majority have less than $10 million in annual sales.
For the full year, CIT reported earnings of $566.9 million, or $2.66 a diluted share. Finance income fell 9.4 percent to $3.73 billion from $4.12 billion the previous year. Year-over-year comparisons were complicated by CIT’s spin-off from Tyco International and subsequent initial public offering in mid-2002.