The CIT Group Inc. (NYSE:CIT) announced the purchase OneWest Bank for $3.4 billion in cash and stock, the company announced today.
CIT – OneWest merger will create a bank with $67 billion in assets
The merger of two formerly troubled institutions will create a combined bank of $28 billion in deposits and $67 billion in assets. OneWest currently manages $15 billion in deposits and $23 billion in assets, which includes commercial and home mortgages, the New York Times is reporting.
The deal includes $2 billion in cash and 31.3 million of CIT shares, currently valued at $1.4 billion. Steven Mnuchin, OneWest’s current chairman, will join CIT as vice chairman. OneWest board member Alan Frank will also take a spot on the CIT board.
Yesterday ValueWalk ran an article “CIT: Be Acquired or Make A Purchase To Avoid Activist?” where we speculated the bank would like to move past the $50 billion in assets mark in a bid to stave off a potential activist investor. In purchasing the bank CIT takes action on its goal of becoming a systemically important financial institution (SIFI) and could become more difficult to purchase.
Mark Pallmer of BTIG notes in a report dated July 22nd 2014:
CIT Group CEO John Thain during his opening remarks at the company’s Investor Day on June 25 indicated that CIT was interested in acquiring a large bank and that it was comfortable exceeding the $50mm threshold that would qualify it as a strategically important financial institution (SIFI).
Less than a month later, CIT followed through on both counts. The company this morning announced that it had agreed to acquire OneWest Bank, a Southern California bank with 73 retail branches, $23bn in assets, and $15bn in deposits, for $3.4bn in cash and stock.
Concern about CIT’s potential purchase
As previously reported in ValueWalk, Concerns about CIT’s potential purchase of a large bank include the belief that such a move would make the company more complex, resulting in making the company more difficult to sell, the report said. This would ensure the company management would remain in place, as many investors believe a sale of the company would be the best means through which shareholder value could be maximized.
The concerns come as Thain mentioned at a June 25 CIT Group Inc. (NYSE:CIT) investor day one strategy the firm might peruse would be purchasing a larger bank. Thain specifically noted that by exceeding $50 billion in assets, the magic line to become a SIFI, the financial institution would receive preferred treatment by the government.
Both CIT and OneWest were problems in the aftermath of the 2008 financial crisis. OneWest, formerly known as IndyMac, a large California savings and loan best known for providing sub-prime mortgages to just about anyone with a pulse. The bank collapsed in the wake of the housing bubble and was pieced back together by a host of well known hedge fund names, including John Paulson, Chris Flowers and George Soros. The bank is currently privately held by investors.
CIT filed for bankruptcy reorganization after financial crisis
CIT had a troubled pas as well. In 2009 the firm, also known to be loose with sub prime mortgages, filed for bankruptcy reorganization in the aftermath of the 2008 financial crisis.
“We have spent the last five years building OneWest Bank into a premier regional bank in Southern California,” OneWest’s Mnuchin said in a statement. “We are confident that this transaction will provide our retail and commercial customers with access to the broad range of high-quality financial products and services offered by CIT, and allow OneWest to benefit from CIT Group Inc. (NYSE:CIT)’s expansive client base and global reach. I look forward to joining the CIT Board, and to ensuring a smooth integration of CIT Bank and OneWest for the benefit of both companies’ stakeholders.”
“This transformational transaction will combine CIT Group Inc. (NYSE:CIT)’s national middle market lending platform with OneWest’s wholesale lending and branch banking franchise to create a unique provider of retail and institutional financial services,” Thain said in a statement. “The transaction diversifies and lowers the cost of CIT’s deposits, broadens the products we can offer to our middle market clients, is accretive to earnings and return on equity, and accelerates the utilization of our NOL, while maintaining a strong capital position. We look forward to welcoming OneWest Bank’s talented employees to CIT as we build our franchise and meet the financing needs of our customers.”