The board of directors of CIT Group Inc. (CIT) recently announced a repurchase authorization of shares worth up to $200 million. The buyback program is expected to be completed by the end of 2013.
This comes on the back of the termination of CIT’s agreement with the Federal Reserve Bank of New York (:FRBNY).
In Aug 2009, CIT had entered into a Written Agreement with the FRBNY. As per the agreement, CIT was restricted from declaring dividends without the prior written approval of the FRBNY. Moreover, CIT was prohibited from buying back shares and redeeming stock. Therefore, any capital deployment activity by the company required governmental approval.
CIT was combating the financial crisis and deteriorating liquidity position at the time of entering into the agreement with the FRBNY. The worsening financial environment prompted the company to file for bankruptcy protection in Nov 2009.
CIT filed pre-packaged voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code. The bankruptcy filing was due to various reasons that included failure to realize some of the benefits of becoming a bank holding company (:BHC), accelerating client credit line draw activity, deteriorating portfolio performance and debt rating downgrades. These factors have led to the worsening of the company’s stressed liquidity position.
However, CIT emerged from bankruptcy in Dec 2009, pursuant to the Modified Second Amended Prepackaged Reorganization Plan.
In recent times, CIT’s capital and financial position has improved. The company has been actively involved in capital restructuring activities through repayment and refinancing of high-cost debt.
Moreover, CIT’s Tier 1 capital ratio stood at 20.0%, total capital ratio at 21.3% and leverage ratio at 19.4% as of Mar 31, 2013. Further, as of Mar 31, 2013, the company’s cash and deposits with banks stood at $2.8 billion. This reflects CIT’s strong capital and liquidity position.
All these factors prompted CIT to engage in share buybacks. This step is expected to boost investors’ confidence in the stock.
CIT currently carries a Zacks Rank #3 (Hold). Some better performing stocks include FleetCor Technologies, Inc. (FLT) with a Zacks Rank #1 (Strong Buy) and Euronet Worldwide Inc. (EEFT) and Financial Engines, Inc. (FNGN) with a Zacks Rank #2 (Buy).
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