CIT Group Inc.
CIT Group Inc.
Incorporated: 1908 as Commercial Credit and Investment Company
Sales: $46.7 billion (2004)
Stock Exchanges: New York
Ticker Symbol: CIT
NAIC: 522220 Sales Financing; 522290 Other Nondepository Credit Intermediation
CIT Group Inc. is one of the nation's leading specialty and commercial finance companies. It specializes in lending, leasing, and financing for small- to mid-sized companies. CIT is an expert in some of the more arcane aspects of corporate borrowing, using intimate knowledge of its client companies to arrange successful deals for equipment leasing, factoring, lending for acquisitions and expansion, and credit management. The company's clients include more than 700,000 companies, with specializations in the transportation industry, the apparel industry, and the construction equipment industry. CIT operates across North and South America, in Europe and the Pacific Rim. The company was a subsidiary of RCA and then Manufacturers Hanover Bank in the 1980s, after being a freestanding public company for many years. CIT went public again in 1997. It was briefly owned by Tyco International Ltd. in 2001 and then was spun off to the public again in 2002.
CIT began life with a longer name, the Commercial Credit and Investment Company. It was founded in St. Louis in 1908 by businessman Henry Ittleson. Ittleson was first interested in financing receivables for area companies. Receivables are cash amounts due a company from its customers or other companies with which it does business. With managing cash flow sometimes a problem for small businesses or those in certain industries, a third-party financial company like Commercial Credit and Investment may be welcome to step in. So from its very earliest years, CIT was involved in this kind of behind-the-scenes commercial financing. After working in the St. Louis area for a few years, Ittleson significantly expanded the business by signing an agreement with the automobile maker Studebaker in 1915. Commercial Credit and Investment became the nation's first specialized financer of wholesale and retail automobile sales. With this move to a nationwide business, Commercial Credit moved its headquarters to New York City. It also changed its name to Commercial Investment Trust, and became known thereafter by the initials C.I.T.
In 1924, C.I.T. sold stock to the public and was listed on the prestigious New York Stock Exchange. By that year it had assets of almost $50 million and 600 employees. It continued its focus on automobile financing, in 1933, buying Universal Credit Corporation, the financing subsidiary of the Ford Motor Company. C.I.T. explored other forms of industrial financing as well. Lending money and financing equipment leases to companies too small to attract big banks was a profitable niche in the overall financial services industry. C.I.T. incorporated a new subsidiary, CIT Financial Corporation, in 1942, to focus on industrial financing. The company was also long involved in a financial service called factoring. Factoring is when a financial services company buys a manufacturer's invoices at a discount. C.I.T. would pay cash for the discounted invoices, and then proceed to collect the owed amount. Factoring is deeply embedded in the apparel and textile industries in the United States, and C.I.T. was a major player from early on. The company had several subsidiaries involved principally in factoring. In 1964, C.I.T. combined its factoring units into a new subsidiary called Meinhard-Commercial Corporation. At the same time, it maintained another factoring company called William Iselin and Co. By the end of the 1960s, C.I.T. poured more of its energies into factoring as well as into financing of industrial equipment leases. It began to diminish its automobile financing business.
Subsidiary Company in the 1980s
C.I.T. was a publicly listed company from 1924 until 1980, when it was acquired by the electronics giant RCA. RCA was a pioneer in both radio and television, and it had many patents on electronic devices, from transistors and semi-conductors to improved vinyl records. It had been one of the country's leading high-technology companies since the 1920s, but by the mid-1970s, when it passed out of the hands of its founding family, the company began to flounder. Between the mid-1970s and the early 1980s, RCA bought into many non-electronic industries in an attempt to diversify. Such diversification was common in the 1970s, which was the era of many conglomerate companies that sold everything from carpet tiles to automobile parts. RCA acquired the frozen foods company Banquet and the rental car company Hertz, and then in 1980 bought up C.I.T. A new RCA president in 1981 vowed to sell off the company's noncore businesses, and in 1984 RCA sold C.I.T. to the Manufacturers Hanover Bank.
Manufacturers Hanover was the country's fourth largest bank at that time, with $62 billion in assets. It paid $1.5 billion for C.I.T. According to the banking industry journal American Banker (November 25, 1983), Manufacturers Hanover was willing to pay a steep price for C.I.T. because it liked the financial services company's "hold on the national middle market." C.I.T. was in a high-growth, high-margin niche. RCA was willing to let C.I.T. go not only because the electronics company was returning to its core business but because it had not been able to make money out of C.I.T. RCA had taken on too much debt in acquiring C.I.T., and even though C.I.T. contributed half of RCA's net income of $223 million in 1983, cash flow had not been enough to offset debt. So both RCA and Manufacturers Hanover seemed pleased with the sale.
In 1986, C.I.T. changed its name to simply the CIT Group. The next year, Manufacturers Hanover senior executive vice-president Albert Gamper, Jr., became chairman and chief executive of the acquired company. In the mid-1980s, CIT was a leader in so-called asset-based financing, and was one of the largest U.S. companies in industrial and commercial financing. It targeted companies with sales from $1 million to $250 million, a vast and growing market of small- to mid-sized firms often too small or too risky to attract other lenders. By that time, CIT had approximately 100 offices around the United States, and handled roughly 50,000 accounts. The company prided itself on its knowledge of its core market of small businesses. It was able to charge from 1 to 2 percent more than regular bank lenders by doing so-called asset-based financing. This means CIT gave out loans secured by a lien on assets, which could be accounts receivable, inventory, or even things like trademark and franchise rights. CIT also continued to provide factoring and traditional commercial financing.
But Manufacturers Hanover sold a majority stake in CIT to a Japanese bank three years later. By 1989, Manufacturers Hanover had dropped from the nation's fourth largest bank to the seventh largest, and its financial condition had weakened as a result of troubled loans to foreign countries. Manufacturers Hanover's foreign debt problems dated back to the early 1980s, before it purchased CIT. In 1989, it sold 60 percent of CIT to the world's largest bank, Tokyo-based Dai-Ichi Kangyo Bank. Dai-Ichi Kangyo paid $1.4 billion for control of CIT and a small portion of Manufacturers Hanover stock. Manufacturers Hanover was then able to put cash in its reserves in case it lost out on some of its dicey loans. This was the largest investment in a U.S.-based financial services company ever made by a Japanese bank.
Changes in the 1990s
CIT Group continued to be run by CEO Albert Gamper through the change in parent company. The early to mid-1990s was a period of great growth and change at CIT. The company went from being a fairly narrowly focused financial services company into one with a broad range of subsidiaries. The company added divisions, sold or merged some units, and grew in assets from about $9 billion in the late 1980s to $19 billion by 1997.
CIT Group opened two new units in 1991, an equity investment firm and a credit finance division. The credit finance division was acquired as Fidelcor Business Credit Corp., and its new owner changed the name to CIT Credit Finance. The next year, CIT branched out in another new direction, debuting a new division, CIT Consumer Finance, in order to offer home equity loans. Then in 1994, the company made another acquisition, taking on Barclays Commercial Corp. This new company was merged with CIT's existing commercial services unit, and the combined subsidiary became the leading factoring company in the U.S. market. CIT had been involved in factoring for a long time, and now was finally in a dominant position within this specialized industry. Factoring had low growth potential, but according to an interview with CEO Gamper in Chief Executive (June 1997), it gave the company "phenomenal return." So by 1995, CIT Group had a more diverse mix of financial services in its stable, from commercial to consumer lending. The company had also stretched itself geographically to reach more of the U.S. market. The year 1995 was a record year for CIT Group, with earnings at $225 million and $17 billion in assets. That year its original parent company, Manufacturers Hanover (which had changed its name to Chemical Banking), sold an additional 20 percent of CIT to Dai-Ichi Kangyo. The Japanese bank then owned a full 80 percent of CIT Group.
Manufacturers Hanover had merged and changed its name to Chemical Banking, and in 1996 it underwent another transition as it merged with Chase Manhattan. Chase Manhattan wanted to get rid of its 20 percent stake in CIT Group. So this portion was sold to the public in 1997, and CIT Group became a public company on the New York Stock Exchange for the second time in its history. The initial public offering went well, as the company was seen as a consistently strong earner. In 1998, the company made a secondary offering, which reduced its Japanese parent company's stake to roughly 44 percent.
Leasing and lending solutions. See it with CIT.
Acquisitions and New Ownership in the 2000s
CIT Group continued to do well in the late 1990s, with record earnings of $339 million in 1999. That year the company made a significant purchase, swallowing a giant Canadian commercial finance company, Newcourt Credit Group, Inc. Newcourt was founded in the mid-1980s by a young accountant, and by 1999 it had grown to be counted as the second largest commercial finance company in the world. It had many large clients, such as Lucent Technologies and Dell Computer, whereas CIT Group specialized in smaller and lesser known client companies. Newcourt's stock began to falter in the late 1990s, apparently because investors feared it had been an overly aggressive lender, and its founder put the company up for sale. CIT Group snapped up the Canadian company in a stock swap valued at approximately $4.2 billion. The deal was finalized in November 1999, resulting in a new firm with more than $50 billion in assets, revenue of some $2.2 billion, and earnings expected at more than $500 million. That same year, CIT also acquired another factoring company, Heller Financial Inc., with assets of about $435 million.
The Newcourt deal was the biggest acquisition CIT Group had made. Although the company had diversified and expanded through the 1990s, it had not been an aggressive buyer like some of its competitors, particularly GE Capital Corp. According to a profile of CIT in Business Week (June 24, 2002), the company had seemed less flashy than others in its industry, as its CEO "struggled to interest investors in a slow-growing company that lent to businesses such as trucking and forest products in the tech-crazed '90s." The Newcourt acquisition broke the slow-growth pattern, and it precipitated difficulties that led to CIT itself being sold.
Just before the deal with CIT was finalized, Newcourt took a writedown of $1 billion, and as a result CIT's share price dropped by 50 percent. By early 2001, CIT Group's stock was still languishing. Investors were apparently somewhat wary of the company's loans backed by securities, as in the early 2000s this kind of loan was seen as too risky. With Newcourt and its loan profile seen as having two strikes against it, CIT seemed to be struggling. In March 2001, the New Hampshire conglomerate Tyco announced it was buying CIT Group in a deal worth some $9.2 billion. Tyco International Ltd. was known for its ADT brand security systems and for its electronics component business. Once a rather staid industrial company, Tyco had begun growing quickly through acquisitions, making four major purchases in the four months before it announced the CIT deal. Tyco apparently thought it was getting CIT for a bargain price, given its low recent performance. But CIT was still something of an odd choice for Tyco to make, as financial services was clearly outside Tyco's core business and area of expertise.
Perhaps the naysayers were right. CIT Group was under Tyco's umbrella only for about a year. By early 2002, Tyco's stock price was in a steep slide as rumors hit Wall Street about accounting regularities and suspicious payments to its director, Dennis Kozlowski.
Tyco's declining reputation had damaged CIT Group's ability to borrow, and in February 2002 Tyco announced that it would sell the financial company within the next few weeks. When it failed to find an immediate buyer, Tyco spun CIT Group off to the public. Tyco had hoped to sell CIT for $10 billion, but spun it off for about $4.6 billion. The public offering took place in July 2002, and CIT Group was once again a stand-alone public company. At almost the same time, the Securities and Exchange Commission announced that it was investigating Tyco. (Tyco's chief executive, Dennis Kozlowski, was sentenced to jail in September 2005 and ordered to pay fines of $167 million for his part in financial wrongdoing at his company.)
This was a rocky time for CIT Group. The Tyco story was one of the biggest scandals of the early 2000s, and CIT was inevitably tarnished by its short stay in Tyco's realm. The company had posted its first loss before Tyco spun it off, and it took some time before CIT was profitable again. But after losses in 2002, the company was in the black in 2003 with a substantially rebuilt reputation. CIT sold off some of its loans investors deemed riskiest, and it had gone after the kind of small business client it knew best. In late 2003, CIT bought the factoring business of GE Financial, making it the biggest U.S. factoring business by far. CIT looked for solid small-capitalization companies, of the sort that others neglected but that CIT had long made its core clientele. Also in 2003, the company chose Jeffrey Peek as president. He became chief executive officer in 2005, when Albert Gamper, who had led the company since 1987, retired. CIT made several acquisitions in 2005, broadening its portfolio to include an educational lending group and a healthcare financing group. At a time when there was some speculation that CIT might again be for sale, its new CEO proclaimed instead that the company would acquire others. The company predicted strong earnings growth in 2005. Under new leadership, CIT reorganized its business, aligning divisions by industry they served, rather than by financial product. The company launched a new investment banking division, while continuing to investigate divesting itself of some units. The company was avowedly in a growth mode as it entered the middle to late 2000s.
CIT Capital Finance; CIT Commercial Finance; CIT Equipment Finance; CIT Small Business Lending Corporation; CIT Specialty Finance; Education Lending Group, Inc.
- The company is founded in St. Louis.
- The company becomes the nation's first automobile credit corporation.
- The company goes public on the New York Stock Exchange.
- CIT Financial Corporation subsidiary is founded.
- The company is acquired by RCA.
- The company is sold to Manufacturers Hanover Bank.
- The name is changed to CIT Group Inc.
- Sixty percent of CIT is sold to Dai-Ichi Kangyo Bank.
- The company goes public for the second time.
- The company is acquired by conglomerate Tyco International.
- The company is spun off to the public for the third time.
- The company names a new CEO.
Commercial Finance; Specialty Finance.
GE Capital Corporation; AIG Inc.
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――――, "CIT, Steadier, Eyes Deals to Buttress Its Core Lines," American Banker, February 12, 2004, p. 1.
――――, "Progress Report," American Banker, August 23, 2005, pp. 1-2.
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Timmons, Heather, and William Symonds, "The Anti-Kozlowski Treatment," Business Week, June 24, 2002, p. 132.