CIT Group Further Simplifies, To Sell European Rail Business

As part of its strategy to simplify operations and become a regional commercial banking institution, CIT Group Inc. (NYSE:CIT) announced a deal to sell its European rail leasing operation, NACCO Group to German-based VTG Aktiengesellschaft. The transaction will include roughly 14,000 rail freight cars.

The deal value comprises sale price of €780 million ($890 million) plus investments made in the freight cars since the beginning of the year till deal closure, which is projected to be €140 million ($160 million). Subject to customary closing conditions, the transaction is anticipated to close in fourth-quarter 2017.

Notably, the deal will not affect CIT Group’s rail operations in Northern America. Based in Paris, NACCO is the company’s last remaining international operation. The company had acquired this business in Feb 2014.

Chairwoman and Chief Executive Officer Ellen R. Alemany said, “This transaction represents another step in our evolution to simplify the company and focus on our core businesses. As part of our transformation, CIT has been divesting its international operations and centering on its core commercial banking franchises, which are largely domestic.”

Our Take

CIT Group has come a long way since its emergence from bankruptcy in 2009. It has become a $50 billion-plus company and is well positioned to meet the additional regulatory requirements associated with being the “systematically important financial institution.”

With a sole aim to simplify operations and focus more on domestic business, CIT Group has been streamlining. With this aim, it sold skate in the joint ventures with Tokyo Century Corporation, divested CIT Commercial Air as well as Canadian, Brazilian and Mexican businesses, among others.

All these moves significantly improved its liquidity and balance sheet position. Thus, this time, CIT Group along with other big banks including JPMorgan Chase & Co. (NYSE:JPM) , Bank of America Corporation (NYSE:BAC) and BB&T Corporation (NYSE:BBT) were able to clear the annual stress test and their 2017 capital plans were approved by the Federal Reserve.

Therefore, driven by these streamlining initiatives, CIT Group will be able to further improve profitability and strengthen its domestic operations. Also, investors seem to be cheering the company’s efforts. The stock has jumped 54.6% over the last one year, significantly outperforming the Zacks categorized Miscellaneous Service industry gain of 31.4%.



However, worsening asset quality remains a matter of concern. As the company plans to become a leading national middle-market bank, a rise in loan balances might lead to higher provisions, going forward.

Also, mounting operating expenses is another key concern for CIT Group. Despite taking measures, costs are expected to rise due to the company’s strategic plans and continued investments in the franchise.

Hence, due to these concerns, analysts seem to be bearish about the stock. CIT Group has been witnessing downward estimate revisions over the last 60 days. Also, the company currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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