1211 Avenue of the Americas
Leasing and lending solutions. See it with CIT.
CIT Group Inc. is one of the nation's leading specialty and commercia l finance companies. It specializes in lending, leasing, and financin g 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 lea sing, factoring, lending for acquisitions and expansion, and credit m anagement. The company's clients include more than 700,000 companies, with specializations in the transportation industry, the apparel ind ustry, and the construction equipment industry. CIT operates across N orth and South America, in Europe and the Pacific Rim. The company wa s a subsidiary of RCA and then Manufacturers Hanover Bank in the 1980 s, 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 Investme nt 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 c ustomers or other companies with which it does business. With managin g cash flow sometimes a problem for small businesses or those in cert ain industries, a third-party financial company like Commercial Credi t 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, Ittl eson significantly expanded the business by signing an agreement with the automobile maker Studebaker in 1915. Commercial Credit and Inves tment became the nation's first specialized financer of wholesale and retail automobile sales. With this move to a nationwide business, Co mmercial Credit moved its headquarters to New York City. It also chan ged its name to Commercial Investment Trust, and became known thereaf ter by the initials C.I.T.
In 1924, C.I.T. sold stock to the public and was listed on the presti gious New York Stock Exchange. By that year it had assets of almost & #36;50 million and 600 employees. It continued its focus on automobil e financing, in 1933, buying Universal Credit Corporation, the financ ing subsidiary of the Ford Motor Company. C.I.T. explored other forms of industrial financing as well. Lending money and financing equipme nt leases to companies too small to attract big banks was a profitabl e niche in the overall financial services industry. C.I.T. incorporat ed a new subsidiary, CIT Financial Corporation, in 1942, to focus on industrial financing. The company was also long involved in a financi al service called factoring. Factoring is when a financial services c ompany buys a manufacturer's invoices at a discount. C.I.T. would pay cash for the discounted invoices, and then proceed to collect the ow ed amount. Factoring is deeply embedded in the apparel and textile in dustries in the United States, and C.I.T. was a major player from ear ly on. The company had several subsidiaries involved principally in f actoring. In 1964, C.I.T. combined its factoring units into a new sub sidiary 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 factor ing as well as into financing of industrial equipment leases. It bega n 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 wa s acquired by the electronics giant RCA. RCA was a pioneer in both ra dio and television, and it had many patents on electronic devices, fr om 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 19 70s, which was the era of many conglomerate companies that sold every thing from carpet tiles to automobile parts. RCA acquired the frozen foods company Banquet and the rental car company Hertz, and then in 1 980 bought up C.I.T. A new RCA president in 1981 vowed to sell off th e company's noncore businesses, and in 1984 RCA sold C.I.T. to the Ma nufacturers Hanover Bank.
Manufacturers Hanover was the country's fourth largest bank at that t ime, 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, hig h-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 i t 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 hal f 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 see med pleased with the sale.
In 1986, C.I.T. changed its name to simply the CIT Group. The next ye ar, Manufacturers Hanover senior executive vice-president Albert Gamp er, Jr., became chairman and chief executive of the acquired company. In the mid-1980s, CIT was a leader in so-called asset-based financin g, and was one of the largest U.S. companies in industrial and commer cial 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, an d handled roughly 50,000 accounts. The company prided itself on its k nowledge of its core market of small businesses. It was able to charg e from 1 to 2 percent more than regular bank lenders by doing so-call ed asset-based financing. This means CIT gave out loans secured by a lien on assets, which could be accounts receivable, inventory, or eve n things like trademark and franchise rights. CIT also continued to p rovide 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 fr om the nation's fourth largest bank to the seventh largest, and its f inancial condition had weakened as a result of troubled loans to fore ign countries. Manufacturers Hanover's foreign debt problems dated ba ck to the early 1980s, before it purchased CIT. In 1989, it sold 60 p ercent of CIT to the world's largest bank, Tokyo-based Dai-Ichi Kangy o 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 som e 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 grow th and change at CIT. The company went from being a fairly narrowly f ocused financial services company into one with a broad range of subs idiaries. The company added divisions, sold or merged some units, and grew in assets from about $9 billion in the late 1980s to $1 9 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 ne w direction, debuting a new division, CIT Consumer Finance, in order to offer home equity loans. Then in 1994, the company made another ac quisition, taking on Barclays Commercial Corp. This new company was m erged with CIT's existing commercial services unit, and the combined subsidiary became the leading factoring company in the U.S. market. C IT had been involved in factoring for a long time, and now was finall y in a dominant position within this specialized industry. Factoring had low growth potential, but according to an interview with CEO Gamp er in Chief Executive (June 1997), it gave the company "phenom enal return." So by 1995, CIT Group had a more diverse mix of financi al services in its stable, from commercial to consumer lending. The c ompany had also stretched itself geographically to reach more of the U.S. market. The year 1995 was a record year for CIT Group, with earn ings at $225 million and $17 billion in assets. That year its original parent company, Manufacturers Hanover (which had changed it s 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 CI T Group.
Manufacturers Hanover had merged and changed its name to Chemical Ban king, and in 1996 it underwent another transition as it merged with C hase Manhattan. Chase Manhattan wanted to get rid of its 20 percent s take in CIT Group. So this portion was sold to the public in 1997, an d CIT Group became a public company on the New York Stock Exchange fo r the second time in its history. The initial public offering went we ll, as the company was seen as a consistently strong earner. In 1998, the company made a secondary offering, which reduced its Japanese pa rent company's stake to roughly 44 percent.
Acquisitions and New Ownership in the 2000s
CIT Group continued to do well in the late 1990s, with record earning s of $339 million in 1999. That year the company made a significa nt 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 sec ond largest commercial finance company in the world. It had many larg e clients, such as Lucent Technologies and Dell Computer, whereas CIT Group specialized in smaller and lesser known client companies. Newc ourt's stock began to falter in the late 1990s, apparently because in vestors feared it had been an overly aggressive lender, and its found er put the company up for sale. CIT Group snapped up the Canadian com pany in a stock swap valued at approximately $4.2 billion. The de al 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. Alt hough the company had diversified and expanded through the 1990s, it had not been an aggressive buyer like some of its competitors, partic ularly GE Capital Corp. According to a profile of CIT in Business Week (June 24, 2002), the company had seemed less flashy than oth ers in its industry, as its CEO "struggled to interest investors in a slow-growing company that lent to businesses such as trucking and fo rest products in the tech-crazed '90s." The Newcourt acquisition brok e 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 writedow n 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. Inve stors 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 r isky. With Newcourt and its loan profile seen as having two strikes a gainst it, CIT seemed to be struggling. In March 2001, the New Hampsh ire conglomerate Tyco announced it was buying CIT Group in a deal wor th some $9.2 billion. Tyco International Ltd. was known for its A DT brand security systems and for its electronics component business. Once a rather staid industrial company, Tyco had begun growing quick ly through acquisitions, making four major purchases in the four mont hs before it announced the CIT deal. Tyco apparently thought it was g etting CIT for a bargain price, given its low recent performance. But CIT was still something of an odd choice for Tyco to make, as financ ial services was clearly outside Tyco's core business and area of exp ertise.
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 st eep 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 financia l company within the next few weeks. When it failed to find an immedi ate buyer, Tyco spun CIT Group off to the public. Tyco had hoped to s ell CIT for $10 billion, but spun it off for about $4.6 billi on. The public offering took place in July 2002, and CIT Group was on ce again a stand-alone public company. At almost the same time, the S ecurities and Exchange Commission announced that it was investigating Tyco. (Tyco's chief executive, Dennis Kozlowski, was sentenced to ja il 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 bi ggest scandals of the early 2000s, and CIT was inevitably tarnished b y its short stay in Tyco's realm. The company had posted its first lo ss before Tyco spun it off, and it took some time before CIT was prof itable 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 f actoring business of GE Financial, making it the biggest U.S. factori ng business by far. CIT looked for solid small-capitalization compani es, of the sort that others neglected but that CIT had long made its core clientele. Also in 2003, the company chose Jeffrey Peek as presi dent. He became chief executive officer in 2005, when Albert Gamper, who had led the company since 1987, retired. CIT made several acquisi tions in 2005, broadening its portfolio to include an educational len ding group and a healthcare financing group. At a time when there was some speculation that CIT might again be for sale, its new CEO procl aimed instead that the company would acquire others. The company pred icted strong earnings growth in 2005. Under new leadership, CIT reorg anized its business, aligning divisions by industry they served, rath er than by financial product. The company launched a new investment b anking division, while continuing to investigate divesting itself of some units. The company was avowedly in a growth mode as it entered t he middle to late 2000s.
Principal Subsidiaries: CIT Capital Finance; CIT Commercial Fi nance; CIT Equipment Finance; CIT Small Business Lending Corporation; CIT Specialty Finance; Education Lending Group, Inc.
Principal Divisions: Commercial Finance; Specialty Finance.
Principal Competitors: GE Capital Corporation; AIG Inc.