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CIT Group Unveils Strategic Plan to Reduce Costs by $125M

Zacks Equity Research

CIT Group Inc.’s CIT shares declined around 3.4% in the last two trading sessions after the company unveiled its strategic plan on Wednesday. The plan includes reducing operating expenses by $125 million by 2018, completing the sale of its commercial air division and focusing on core commercial lending and leasing businesses. Moreover, the integration of OneWest Bank is expected to be completed by the end of 2016.

“Today, CIT announces steps to focus on our core businesses, improve our financial performance and transition our strategy to become a national middle market bank serving our customers with an integrated set of financing and deposit products,” said Ellen R. Alemany, incoming Chairwoman and CEO of CIT Group, and CEO and President of CIT Bank. “The CIT Board of Directors and management team have been conducting a strategic review of our businesses and are taking decisive actions to chart a clear path forward to drive value for shareholders and to demonstrate our commitment to our customers, communities and employees.”

The company expects to achieve 10% return on tangible common equity by 2018. Further, improvement in funding costs is anticipated through augmentation in deposits and return extra capital to shareholders. However, such moves await regulatory approvals.

"Our strategic plan of focusing on our core businesses and leveraging the strength of our franchises and risk management practices will maximize value for shareholders and position CIT as a leading national middle market bank," added Alemany.

The turnaround plan announced by the company follows a decline of around 14.9% in share price since the beginning of 2016. However, shareholders have to wait for returns till the proposed changes become effective.

Sluggish growth in the industries where CIT Group provides finance will likely dent its performance in the near term. Further, increased regulatory requirements might result in higher costs, fee reduction and restrictions.

CIT Group currently carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks from the same space include LendingClub Corporation LC, Synchrony Financial SYF and Apollo Residential Mortgage, Inc. AMTG. All three hold a Zacks Rank #2 (Buy).

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