CIT Group Gets Regulatory Nod for Mutual of Omaha Bank Deal
CIT Group Inc. CIT received regulatory approval from the Office of the Comptroller of the Currency (“OCC”) to acquire Omaha, NE-headquartered Mutual of Omaha’s savings bank subsidiary, Mutual of Omaha Bank, for $1 billion. CIT Group announced the deal in August 2019 to expand commercial banking operations.
The transaction, anticipated to close in the first quarter of 2020, is still subject to the receipt of certain other regulatory approvals, and waivers and completion of the other customary closing conditions.
Ellen R. Alemany, CIT Group’s CEO, stated, “We are pleased to receive approval from the OCC and complete another milestone in the transaction. This acquisition will make CIT an even stronger company through the addition of the scalable homeowner association banking business and the complementary middle market banking capability.”
The deal is expected to help CIT Group diversify and improve its funding profile, as the homeowners’ associations (“HOA”) banking operations of Mutual of Omaha Bank provide low cost deposits. Notably, the deal does not include Mutual of Omaha's mortgage subsidiary, Synergy One Lending.
Deal Details
The deal value of $1 billion comprises mostly cash and approximately $150 million worth of CIT Group shares. The exact worth of shares to be issued is expected to be disclosed by the company later on.
Following the deal’s closure, CIT Group is expected to have total deposits of roughly $42.1 billion and total assets worth $58.9 billion.
Benefits
At the time of announcement, CIT Group said that the deal is expected to increase its earnings per share by 2% in 2020, 3% in 2021 and 8% in 2023. Moreover, the company projects cost savings of $54 million over the next three years.
Following the completion of the transaction, CIT Group is anticipated to witness an expansion of nearly 20 basis points (bps) in its deposit costs. The company expects its return on tangible common equity to advance 20 bps in 2020, and expand by more than 100 bps over two years.
Also, CIT Group targets to achieve common equity tier 1 (CET) ratio of 10.5%, of which 10% will be reached immediately at the deal’s closure, while the remaining is expected to be achieved within 12 months. The company has suspended its share buyback until it meets the CET 1 target.
Our Take
The deal is expected to help CIT Group work on the next phase of its growth strategy. As part of its plan (including the goal to become a leading commercial bank), the company divested more than $14 billion worth of non-core assets.
Additionally, it has lowered operating expenses by $150 million over the last three years. The company plans to further cut roughly $50 million in annual expenses by 2020. These efforts along with the aforementioned deal will likely boost CIT Group’s financials in the days ahead.
Shares of this Zacks Rank #3 (Hold) company have rallied 16.7% year to date, underperforming the industry’s growth of 19.6%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Of late, banks are trying to diversify their revenue sources and improve market share through inorganic growth strategies. Several banks, including Associated Banc-Corp ASB, Canadian Imperial Bank of Commerce CM and OceanFirst Financial Corp OCFC, have announced acquisitions, which are projected to be accretive to their earnings.
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