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CIT Group Inc. Business Analysis 1
Running head: CIT GROUP INC. BUSINESS ANALYSIS
CIT Group Inc. Business Analysis
Jerry Ambroise
AIU
FIN 620: Financial Statement Analysis
Nicolas Pologeorgis
March 25, 2012
CIT Group Inc. Business Analysis 2
External Analysis
Economic Structure
Commercial Lending Banks had revenues of $614 trillion dollars and a net operating
income of $72 trillion in 2010. A total of 6,530 banks operated in the industry. 2,328 of
commercial lenders have assets of less than $100 million each, 3.693 control between $100
million and $1 billion and only 509 have typical assets of over $1 billion. (FDIC, 2010)
There are various categories in commercial lending. There are some companies that
specialize in real estate lending, others in agricultural lending, certain banks lease equipment and
there are many more that focus on other types of commercial lending. These categories are
further structured into different loan designs. This variety of strategies allow for different banks
to specialize in different types of lending (smallbusinessloans.com, 2012).
Even as banks expand their lending territory, recover from the economic downturn and
fewer institutions control a majority of the market, commercial lending has been stabilizing.
While large banks show a preference for larger industries and asset backed loans, smaller banks
rely more on credit worthiness and local information to finance small businesses (Laderman &
Gillan, 2011).
While revenues have decreased from 2010 to 2011, net operating income has increased
(FDIC, 2010). New competitors might find the net operating income attractive; however
regulatory requirements and the size of the established bank might act as a deterrent for new
businesses to enter into commercial lending. The possible new competitors would likely be
companies from totally different industries that have the cash and the size to compete in the big
bank arena. GE Capital is a perfect example of a company that diversified from its original
industry to go into commercial lending (Oliver, 2012).
CIT Group Inc. Business Analysis 3
There are substitutes to commercial lending that small businesses and larger companies
use to finance their operations. Small business sometime uses other means such as trade credit,
personal credit cards and home equity to finance their business. Larger businesses might issue
bonds or sell company stocks to raise capital to finance their projects.
Commercial lenders play a critical role as a bridge between borrowers and investors. All
businesses need capital and are always looking for cost effective and ingenious ways to finance
their operations. Investors are always looking for low risk ways to invest their money and get a
return.
Individual Competitor Assessment
The three major competitors of CIT Group Inc. are Citigroup, GE Capital and ORIX.
While all these companies are involved in commercial lending, they are involved at different
levels and specializations.
Citigroup
Although Citigroup’s main business consist of consumer and investment banking, the
company also have some involvement in commercial lending with a particular focus on midsize
business who want to expand abroad (Stewart, 2011). Citigroup is organized into two different
entities: Citicorp and Citi Holdings.
Citicorp is segmented into Regional Consumer Banking, Institutional Clients Group and
transaction services. Regional Consumer Banking offers banking services worldwide and offers
some small business lending solutions like small business credit cards and unsecured loans.
Institutional Clients Group offers wealth management, investment, consultation and commercial
lending solutions. Their loans consist of Lines of credit, Business Checking Plus, Term Loans,
CIT Group Inc. Business Analysis 4
Commercial Mortgages, SBA loans and Security backed loans (Citigroup, 2012). Transaction
Services include solutions like trade services and cash management.
Citi Holdings comprises Brokerage and Asset management alongside Local Consumer
Lending and Special Asset Tool. The only commercial lending that this segment offers is
commercial real estate lending (Citigroup, 2012).
Even though Citigroup still does some activity in commercial lending, it is clear that it
wasn’t going to be a big part of their lineup when they sold most of Citi Capital to GE Capital.
GE Capital
GE Capital would be the most direct and potent competitor to CIT Group based on their
product and customer line up. With assets of $576 billion and a net income of $3.3 billion in
2010, they operate in more than 50 countries worldwide. (General Electric Company, 2011)
They also contributed to over half of GE’s profits (Ramirez, 2012).
The three major segments of GE Capital are Commercial Lending and Leasing alongside
Consumer Lending. In the Commercial Lending segment, they specialize in aerospace and
defense, automotive and transportation, chemicals and plastic, construction, business services,
agribusiness, healthcare, manufacturing and energy. The leasing segment is pretty similar except
they add metals and mining, retail, printing and telecommunications to their specialization. In the
Consumer Lending section, GE mostly provides credit cards and installment loans for dealers,
organizations and retailers in the agriculture, automotive, electronics and appliances, flooring,
furnishings, healthcare, home improvement and luxury industries.
GE capital customers include companies like ADT, JetBlue and Wendy’s. Their main
strategy is using their natural advantage which is their practical knowledge of these particular
CIT Group Inc. Business Analysis 5
industries to provide custom lending and leasing solutions to companies and other organizations
in these industries (General Electric Company, 2011).
ORIX
ORIX Croup is a Japanese Financial services company that also competes directly with
CIT Group; however most of their business is conducted in Japan. 80% of their revenues came
from their main land. They do offer financing and consulting options for Japanese companies
that plan to expand overseas but their main focus is future growth is the Asian market. They offer
similar solutions like GE in commercial lending and leasing but offer banking solutions like
Citibank in the consumer market. They do not offer a current threat to CIT Group but that might
change depending on the products they plan to market in Asia (Orix Corporation, 2011).
Customer Analysis
CIT Group serves a wide range of customers from the small to mid-market businesses or
investors. They serve consumer product companies, B2B companies, manufacturers, distributors,
importers, exporters, the military, healthcare, agriculture, energy and aerospace among many
others.
A lot of these businesses are affected by the current economic downturn; specially, those
who depend on consumer purchases. In turn, it can and did affect CIT Group. Their Chapter 11
reorganization was largely due to the economic downturn. In order to stay successful, not only
do they have to pay attention to trends in the industries that they serve, they also have to pay
attention to the customers of the companies that they serve. They need to know to pay attention
CIT Group Inc. Business Analysis 6
to the markets to see in what directions they’re headed in order to continue to offer their
customers products and services that solves their problems.
Regulatory Analysis
Banks are regulated by many different government agencies that are there to protect lenders,
investors, borrowers, depositors and any other type of person or entity that does business with a
bank. Especially after the crisis of 2008, there’s been a big push for more regulation on
commercial banks as there were many bad loans bundled as AAA securities that were sold to
unsuspecting investors and banks. There is currently a request on the white house website’s
petition page to return to the Glass–Steagall Act which until 1999 prevented the combination of
commercial banking with investment banking. If this law was re-established, that would limit the
source from which commercial bank can draw from to provide loans to businesses and also limit
the type of investing businesses bank could engage in. The most recent law that was passed that
affects companies like CIT Group Inc. is the Dodd-Frank Act that added significant requirements
to Bank Holding Companies. Some of the requirements are as followed:
Additional fees and costs to cover expenses associate d with regulating banking
institutions.
Possible new consumer laws and revision of current ones by the Consumer Financial
Protection Bureau.
Ban on “proprietary trading “and limits on banking institution’s involvement in hedge
funds and private equity.
Prohibition from engaging in significant swaps related activities by federally insured
deposit banks while requiring greater transparency and standards in the derivative market.
Firms must assume a part of the credit risk in asset-backed securities.
CIT Group Inc. Business Analysis 7
The SEC , the Federal Reserve and other regulatory agencies must mutually require
Shareholders have the right to cast non biding votes in relation to executive
compensations every 3 years and during mergers, acquisitions and sales of significant
assets.
Rules that require companies to recoup incentive based compensations when financial
statements have to be reiterated due to noncompliance.
There is an extensive list of institutions with regulative or enforcement authority over CIT: the
Federal Reserve Bank, the Federal Reserve Bank of New York, the department of Financial
Institutions of the State of Utah, The US Small Business Administration, the FDIC, The SEC,
state and local regulatory agencies and other foreign regulatory agencies. They regulate in
matters such as capital requirements, liquidity requirements, higher requirements for large
companies, acquisitions, interstate banking and branching, dividends, deposits and other bank
transactions (CIT Group Inc., 2010).
External Analysis Summary
The future success of CIT is highly reliant on outside independent forces such as the economic
environment and government regulations. The true competitive threat to CIT is without a doubt
GE Capital or an unexpected entrant in the market. Costumers of CIT should be reliable sources
of business unless another economic downturn reduces their need for growth and consequently
the need for funds or equipment. The Dodd-Frank act will probably increase the cost of capital,
and stricter financial requirements will limit the variety of businesses that CIT will be able
participate in. considering all these factors, it is difficult to predict the future viability of the
company since the regulatory environment is highly dependent on which political party will be in
CIT Group Inc. Business Analysis 8
power in November. However, if the economic recovery continues to improve, the company’s
growth looks promising.
Internal Analysis
Mission
On its website CIT describes its vital role as follows:
“Over 1,000,000 business customers depend on CIT to provide the financing they need to run
their businesses. And for more than 100 years, CIT has remained committed to the lending needs
of the small and middle market – providing needed capital to markets that other larger and
smaller financial institutions often don’t (CIT Group Inc., 2012).”
With this statement, it is clear that that CIT main focus is to retain its market. Even though there
is strategic effort at expanding in the Asian market, it is clear that they want to use their expertise
and the uniqueness of their financial products to solidify their position by using these
competitive advantages. The expressed mention of their years of experience, their portfolio and
the focus on their main markets gives specific insight of their strategy to rely on their tradition
and uniqueness to market their products.
Products and Services
CIT offers a wide variety of products and services in commercial Financing around the world.
They market to various industries that they design different products and services for. They
provide lending, leasing and financial and advisory services to small and middle market
corporations. To aerospace, rail and defense related industries they design large ticket equipment
leases and secured financing. Supply chain companies have factoring, lending, credit protection,
management of receivables and other trade products available from CIT. Worldwide, Financing
CIT Group Inc. Business Analysis 9
and leasing are delivered to manufacturers and distributors. Finally, the company’s consumer
loan segment which mainly consists of government backed student loans.
CIT’s customers use its products and services to finance business, provide credit to their
customers, obtain operational equipment and manage their business (CIT Group Inc., 2010).
Product Life Cycle
The product life cycles of commercial financial products and services are very difficult if not
impossible to predict as they are highly dependable on the business needs of other companies.
For example the need for an expansion loan would depend on the growth need of an external
company. So the analysis of when to market their products is squarely based on analysis and
knowledge of the companies they serve. The life cycle of their products and services should
derive from the close monitoring of the companies, industries and markets they serve.
Pricing and Differentiation
Financing and services pricing is pretty similar across the industry so most companies try to
compete on differentiation and that is a also true for CIT. The company relies on its expertise, its
reputation, and industry specialty to market to specific industries and offer products that very
few other companies offer (CIT Group Inc., 2010).
Marketing Strategies
Their main effort consists of direct marketing to borrowers, lessees, manufacturers, vendors and
distributors. They also use referrals and intermediaries especially in foreign countries. On the
global scale they also use advertising such as print, mobile, web and radio. In the advertising
they present their company as growth agent for businesses and countries (CIT Group Inc., 2012).
Supply Chain
CIT Group Inc. Business Analysis 10
CIT generates products through funds it secures from investors, its own financial assets. It has
offices in various countries where it operates with its own name, through subsidiaries or financial
partners (CIT Group Inc., 2010).
Human Resources
The company plans to hire key personnel in risk management functions and structure incentive
compensation packages in line with industry standards.
Key changes during 2009 and 2010 were the reconstitution of the board of directors and hiring in
key management positions. John Thain became Chairman of the Board and CEO and the
following position were filled: Chief Administrative Officer and Head of Strategy, Chief
Financial Officer, Chief Auditor, Chief Risk Officer, Chief Credit Officer, Corporate Controller,
and Executive Vice President – Banking. The following business divisions were also expanded
with the hiring of experienced professionals: Corporate Risk Management, Internal Audit,
Compliance, and Loan Risk Review functions (CIT Group Inc., 2010).
Investment Priorities
CIT’s investment priorities were to maintain their leadership role in the small to middle-market
companies’ segment. Not only did they manage to achieve this, they strengthened their
relationship with small business, middle market, transportation, and vendor finance clients (CIT
Group Inc., 2010).
Finance
The company’s net income was $517 million in 2010, which was significant considering the fact
that it reported losses of $3.8 million in 2009 and $2.9 billion in 2008. The company also
eliminated a lot of its debt and costly acquisitions after restructuring in 2009. The stock market
responded by increasing the company value by 70% (CIT Group Inc., 2010).
CIT Group Inc. Business Analysis 11
CIT GROUP’S COMBINED INCOME STATEMENT AND CASH FLOW STATEMENT
(dollars in millions – except per share data)
Years Ended December 31,
2010
Revised
Interest income
Interest and fees on loans $ 3,693.9
Interest and dividends on investments 31.7
Interest income 3,725.6
Interest expense
(2,992.
Interest on long-term borrowings 6)
Interest on deposits (87.4)
(3,080.
Interest expense 0)
Net interest revenue 645.6
Provision for credit losses (820.3)
Net interest revenue, after credit provision (174.7)
Other income
Rental income on operating leases 1,645.8
Other 1,005.5
Total other income 2,651.3
Total revenue, net of interest expense and credit provision 2,476.6
Other expenses
Depreciation on operating lease equipment (675.4)
(1,022.
Operating expenses 1)
(1,697.
Total other expenses 5)
Income (loss) before reorganization items, fresh start accounting adjustments and income taxes 779.1
Income before (provision) benefit for income taxes 779.1
(Provision) benefit for income taxes (250.9)
Income before noncontrolling interests and preferred stock dividends 528.2
Net (income) loss attributable to noncontrolling interests, after tax (4.4)
Net income before preferred stock dividends 523.8
Preferred stock dividends –
Net income (loss) available (attributable) to common shareholders $ 523.8
Cash Flows From Operations
Net income, before preferred stock dividends $ 523.8
Adjustments to reconcile net income before preferred stock dividends to net cash flows from
operations:
CIT Group Inc. Business Analysis 12
Provision for credit losses 820.3
Net depreciation, amortization and (accretion) (507.0)
Net (gains) loss on equipment, receivable and investment sales (438.9)
Provision for deferred income taxes 105.9
Decrease in finance receivables held for sale 31.2
Decrease (increase) in other assets (377.1)
(Decrease) increase in accrued liabilities and payables 428.2
Net cash flows provided by operations 586.4
Cash Flows From Investing Activities
(18,898.
Loans extended and purchased 5)
Principal collections of loans and investments 25,673.4
Purchases of investment securities (148.4)
Proceeds from maturities of investment securities 191.7
Proceeds from asset and receivable sales 5,262.6
Purchases of assets to be leased and other equipment (1,286.9)
Net decrease in short-term factoring receivables 527.1
Change in restricted cash (1,133.1)
Net cash flows provided by investing activities 10,187.9
Cash Flows From Financing Activities
Proceeds from the issuance of term debt 3,022.8
(13,007.
Repayments of term debt 0)
Net increase (decrease) in deposits (597.1)
Net repayments of non-recourse leveraged lease debt (22.2)
Collection of security deposits and maintenance funds 660.9
Repayment of security deposits and maintenance funds (586.8)
(10,529.
Net cash flows used in financing activities 4)
(Decrease) increase in cash and cash equivalents 244.9
Unrestricted cash and cash equivalents, beginning of period 8,405.5
Unrestricted cash and cash equivalents, end of period $ 8,650.4
CIT Group Inc. Business Analysis 13
CIT Group Inc. Business Analysis 14
References
CIT Group Inc. (2010, March 9). CIT Annual Report 2010. Retrieved from CIT:
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CIT Group Inc. (2012). CIT Advertising. Retrieved from CIT: http://www.cit.com/media-
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CIT Group Inc. (2012). The Vital Role of CIT. Retrieved from CIT: http://www.cit.com/about-
cit/our-vital-role/index.htm
Citigroup. (2012). Commercial Banking Products and Services. Retrieved March 25, 2012, from
Citigroup: https://online.citibank.com/US/JRS/pands/detail.do?ID=CitiCBSolutions
Citigroup. (2012). How Citi is Organized. Retrieved March 22, 2012, from Citigroup:
http://www.citigroup.com/citi/business/index.htm
FDIC. (2010, December 32). Statistics on Depository Institutions Report. Retrieved from FDIC:
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Laderman, L., & Gillan, J. (2011, October 17). Recent Trends in Small Business Lending.
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CIT Group Inc. Business Analysis 15
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