DBRS Confirms CIT’s “A” Rating, Revises Trend to Stable

DBRS has today confirmed all ratings of CIT Group Inc. (CIT or the Company). Concurrently, DBRS revised the trends to stable from positive. The change in rating trend follows the Company’s recent announcement that it has recorded a pre-tax charge of $765 million related to a mark to market adjustment on its home lending portfolio in connection with a planned exit of this business. Although DBRS believes there are potential positives associated with the planned exit of this highly volatile business line, which will likely be recognized in the long term, the uncertainty regarding timing and the method of the divestiture largely overshadow these positives in the near term. Moreover, DBRS is concerned that the ultimate costs of divesting this business has yet to be determined as the market instability in the non-prime mortgage market could potentially lead to additional valuation adjustments. DBRS believes any additional valuation charges associated with the exit of this business line will likely reduce the probability of strong consistent earnings growth in the near term, which was a significant factor underlying the prior positive rating trend.

The ratings confirmation is based on the Company’s overall strong business franchise as one of the largest independent commercial finance companies, its diverse earnings profile in its non-home lending segments, its sufficient capitalization, and its sound asset management/credit culture. CIT’s considerable market position in commercial lending has afforded the Company a high level of earnings stability across various economic environments. Excluding the one-time charges associated with the planned exit of the home lending business, second quarter pre-tax earnings improved over the prior year from $356 million to $546 million, owed to higher finance revenue and strong year-over-year volume growth. DBRS expects the Company to continue to generate strong earnings in its non-mortgage lending businesses while enhancing its portfolio diversity and funding alternatives. DBRS believes that the Company’s risk profile has improved with its sale of the higher risk and high concentration equipment construction segment

DBRS will continue to monitor CIT’s progress in its effort to divest the home lending business. The successful exiting of this business without significant losses will likely improve CIT’s risk profile as higher risk mortgage loans are removed from the balance sheet.

Note:
All figures are in U.S. dollars unless otherwise noted.