Bank Break-ups: here we go again
Investors are calling for restructuring of CIT
John Thain’s ride into the sunset may be lucrative. It will not be smooth. Last autumn, the chief executive CIT Group announced plans to depart — one in a series of strategic changes at the formerly troubled finance firm. The lender went bankrupt during the crisis, and while Mr Thain’s five-year tenure had not done much for the shares, he left it on steadier footing, and perhaps even the path to better fortune.
Unfortunately, since that day last October when the flurry of moves was announced, CIT shares have dropped 40 per cent (Mr Thain has said that the stock market is pricing in a recession that he does not believe is imminent). And now investors are calling for a break up of the institution. Many other financial institutions, plagued by low interest rates and increased capital requirements, have somehow managed to avoid decomposition. But a continued weak outlook at mediocre banks means the pressure will continue to build.
Mr Thain’s signature achievement, acquiring OneWest Bank in 2015, diversified CIT’s funding base. It also took the group over the $50bn asset threshold. That is the level at which the Fed has to approve buyback and dividend plans. “Systemically important” status has forced General Electric and MetLife to break apart. (AIG is fending off a disaggregation endorsed Carl Icahn).
For its part, CIT is looking to dump its aircraft leasing unit ($10bn in assets) whose capital charges do not justify its profitability.
Still, plenty of investors believe broader cuts, including a sale of its railcar finance business, are needed. Interest rates appear unlikely to rise again soon and worries about energy loans do persist. Banks, looking to put the crisis behind them, may just remain stuck in an abyss. CIT trades at just over half its book value. As such, separating the pieces looks tempting as an easy way to juice shares. This thorny problem is no longer Mr Thain’s. He departs next month.