Investors Cheer CIT Earnings and Deal Announcement

CIT Group Inc said it will buy OneWest Bank in a $3.4 billion cash and stock deal. It also reported results that handily beat analyst estimates.

As part of the deal, OneWest Bank, owned by IMB Holdco LLC, will receive $2 billion in cash and 31.3 million CIT Group shares, valued at $1.4 billion at a price of $44.33. The deal is expected to add 20% to earnings for 2016.

This is the biggest bank acquisition this year so far, and will raise CIT’s assets to about $67 billion, which will qualify the bank as ‘systemically important’ and bring increased regulation.

Both boards of directors have approved the deal, the company said in a statement. CIT shares surged 11.6% in midday trading.

Separately, CIT on Tuesday also posted a 34% increase in second-quarter profit, easily topping analysts’ expectations. It also announced a $500 million stock-buyback program. CIT posted a profit of $246.9 million, or $1.29 a share, up from $183.6 million, or 91 cents a share, a year earlier. Analysts were expecting earnings of 94 cents a share. CIT’s outstanding loan portfolio increased to $18.6 billion from $18.16 billion a year earlier. New business volume was $1.4 billion, up from $907.3 million a year ago.

The results suggest CEO John Thain’s efforts to turnaround CIT after its 2009 bankruptcy are taking hold. One of the measures was to fund more loans through deposits, a cheaper and more stable source of funding. With this deal, CIT will have access to 73 of OneWest Bank’s branches in California, and have a combined $28 billion in deposits. It will also have enough assets to cover increased regulation costs that will come as it becomes a over-$50 billion bank.

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