On Wednesday, CIT Group Inc. (CIT) announced an agreement to acquire a commercial loan portfolio worth $1.3 billion from Flagstar Bank, a fully-owned subsidiary of Flagstar Bancorp, Inc. (FBC). The total portfolio comprises roughly $800 million of outstanding loans. The acquisition is anticipated to be closed in the first quarter of this year.
The acquired portfolio principally consists of asset-based commercial real estate and equipment finance loans and leases. These make up a considerable portion of Flagstar Bank's Northeast-based commercial loan portfolio.
In November 2012, Wells Fargo & Company (WFC) also took similar step and announced the acquisition of a loan portfolio with face value of $3.3 billion from Irish Bank Resolution Corporation (IBRC), previously known as Anglo Irish Bank. The portfolio comprised 61 performing U.S.-based commercial real estate loans.
Management at CIT Group believes that the acquisition will enhance the company's middle-market customer base. We believe that the bank is purchasing such loans in order to significantly gain in the long term.
With respect to CIT Group's fundamentals, it is poised to benefit from strong capital and liquidity position. Moreover, the company's recent initiatives to restructure its balance sheet as well as repay and refinance its costly debt will not only bring down the funding costs, but also would lead to an improvement in its net interest margin as well as profitability.
However, CIT Group's growth prospects will likely be adversely impacted by sluggish growth in the industries where the company provides finance, stringent regulations as well as the weak economic recovery.
CIT Group currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.