Fitch Rates CIT Bank, N.A. 'BB+/B' Following CIT Group Inc.'s Acquisition of OneWest Bank

NEW YORK--()--Fitch Ratings has assigned 'BB+/B' long- and short-term Issuer Default Ratings (IDRs) to CIT Bank, N.A., following the announcement that CIT Group Inc. (CIT) completed its acquisition of IMB Holdco LLC, the parent company of OneWest Bank N.A. for approximately $3.4 billion in cash and stock. As part of that transaction, CIT Bank merged with and into OneWest Bank N.A. and the combined entity was re-named CIT Bank, N.A. The Rating Outlook is Stable. Fitch has also affirmed and withdrawn the 'BB+/B' long- and short-term IDRs for the former CIT Bank as the entity no longer exists. A full list of ratings follows at the end of this release.

Transaction Overview

On July 21, 2014, CIT Group Inc. entered into a merger agreement with IMB Holdco LLC and other entities (OneWest transaction). As part of the OneWest transaction, CIT Bank, a Utah state chartered bank and a wholly owned subsidiary of CIT, merged with and into OneWest Bank N.A., a national bank and a wholly owned subsidiary of IMB Holdco LLC. OneWest Bank N.A. survived as a wholly owned subsidiary of CIT and was re-named CIT Bank, N.A. The net merger consideration was comprised of approximately 59% cash (approximately $1.867 billion) and approximately 30.9 million shares of CIT, as well as approximately 168,000 restricted stock units of CIT. On July 21, 2015, The Federal Reserve Board, the Office of the Comptroller of the Currency, and all required state regulators approved the OneWest Transaction.

KEY RATING DRIVERS

IDRs and VR

Post the OneWest transaction, CIT has more than $65 billion in assets and more than $30 billion of deposits. The OneWest transaction will increase CIT's deposit base, lower its overall cost of funds, create additional cross selling opportunities and allow CIT to potentially realize more of its existing net operating loss carry forward. However, Fitch views the OneWest transaction as posing modest integration and execution risks, while the move above the $50 billion asset threshold introduces additional regulatory hurdles and compliance costs.

Furthermore, Fitch views OneWest's deposit platform as potentially more sensitive to interest rates relative to its bank peers as result of an above average mix of time deposits and a sizeable mix of high average balance accounts. Given these offsetting factors, Fitch's assessment of CIT's credit risk profile is unaffected by the closing of the OneWest transaction.

CIT Bank, N.A.'s IDRs and Viability Rating (VR) reflect CIT's leading franchise positions in key business segments, including aircraft leasing, railcar leasing and factoring, appropriate capital levels relative to asset exposures, strong liquidity, diversified funding profile, seasoned management team and demonstrated execution on previously-articulated business objectives.

These strengths are counterbalanced by CIT's elevated exposure to middle market borrowers, a higher risk customer segment historically, outsized exposure to cyclical businesses such as aircraft and railcar leasing and associated asset residual value risk, and greater earnings volatility relative to its bank peers. Fitch believes that CIT's profitability and returns, although improving, remain below the company's cost of capital and long-term return on average tangible common equity target, which could potentially introduce strategic uncertainty over the intermediate- to long-term.

Furthermore, ratings remain constrained by CIT's outsized reliance on wholesale funding sources relative to its bank peers. Fitch believes CIT's online deposit franchise, which includes a higher-than-average mix of high dollar balance accounts and time deposits, may be subject to increased deposit outflow sensitivity in a rising interest rate environment.

CIT Bank, N.A.'s IDR of 'BB+' is equalized with its VR of 'bb+', reflecting Fitch's view that external support cannot be relied upon.

KEY RATING DRIVERS

Support Ratings and Support Rating Floors

The Support Rating (SRs) of '5' reflects Fitch's view that external support cannot be relied upon. The Support Rating Floor (SRF) of 'No Floor' reflects Fitch's view that there is no reasonable assumption that sovereign support will be forthcoming to CIT Bank, N.A.

KEY RATING DRIVERS

Long- and Short-term Deposit Ratings

CIT Bank, N.A.'s uninsured deposit ratings of 'BBB-/F3' are rated one notch higher than the bank's IDRs because U.S. uninsured deposits benefit from depositor preference in the U.S. Fitch believes depositor preference in the U.S. gives deposit liabilities superior recovery prospects in the event of default.

RATING SENSITIVITIES

IDRs and VR

Fitch views CIT Bank, N.A. as a core subsidiary of CIT and therefore, its ratings are primarily sensitive to changes in CIT's overall credit risk profile.

Fitch views upward rating momentum for CIT as limited given current modest operating performance levels, potential increased sensitivity of the deposit platform to rising rates and the integration and execution hurdles associated with the OneWest acquisition. Longer-term, however, positive rating momentum could develop as a result of improved and consistent operating performance, demonstrated credit performance through market cycles which is in line with expectations, maintenance of appropriate capital levels relative to the company's risk profile and regulatory minimums and an enhanced funding profile characterized by less reliance on wholesale funding sources and demonstrated durability of deposits in a rising interest rate environment.

Negative rating momentum could be driven by a sustained weakness in operating performance which results in insufficient capital generation or a material change in risk appetite, strategic objectives, or composition of business activities. Expansion into new business verticals outside CIT's core commercial lending and leasing expertise or outsized growth in new commercial businesses may lead to negative rating momentum.

Failure to successfully integrate OneWest could adversely impact CIT's ratings if accompanied by outsized costs or risks to the broader organization. An inability to successfully manage the increased regulatory requirements associated with assets exceeding the $50 billion threshold would also be viewed negatively.

RATING SENSITIVITIES

Support Ratings and Support Rating Floors

CIT Bank, N.A.'s SR and SRF are sensitive to Fitch's assumptions around capacity to procure extraordinary support in case of need.

RATING SENSITIVITIES - Long- and Short-Term Deposit Ratings

CIT Bank, N.A.'s uninsured deposit ratings are rated one notch higher than the company's IDR, and therefore are sensitive to any changes in CIT Bank, N.A.'s IDR. The deposit ratings are primarily sensitive to any change in CIT Bank, N.A.'s long- and short-term IDRs.

Fitch has affirmed and withdrawn the following ratings for CIT Bank, as the entity no longer exists:

---Long-term IDR at 'BB+';

---Short-term IDR at 'B';

---Viability Rating at 'bb+';

---Long-Term Deposit Rating at 'BBB-';

---Short-Term Deposit Rating at 'F3';

---Support Rating at '5';

---Support Rating Floor at 'NF'.

Fitch has assigned the following ratings to CIT Bank, N.A. with a Stable Outlook:

---Long-term IDR at 'BB+';

---Short-term IDR at 'B';

---Viability Rating at 'bb+';

---Long-Term Deposit Rating at 'BBB-';

---Short-Term Deposit Rating at 'F3';

---Support Rating at '5';

---Support Rating Floor at 'NF'.

Fitch currently rates CIT Group Inc. as follows:

---Long-term IDR 'BB+';

---Short-term IDR 'B';

---Viability Rating 'bb+';

---Revolving Credit Facility 'BB+';

---Senior Unsecured Debt Rating 'BB+';

---Support Rating '5';

---Support Rating Floor 'NF'.

Additional information is available on www.fitchratings.com.

Applicable Criteria

Global Non-Bank Financial Institutions Rating Criteria (pub. 28 Apr 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865351

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=989003

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=989003

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Meghan Neenan, CFA
Senior Director
+1-212-908-9121
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Nathan Flanders
Managing Director
+1-212-908-0827
or
Committee Chairperson
Joo-Yung Lee
Managing Director
+1-212-908-0560
or
Media Relations:
Alyssa Castelli, +1-212-908-0540
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Meghan Neenan, CFA
Senior Director
+1-212-908-9121
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Nathan Flanders
Managing Director
+1-212-908-0827
or
Committee Chairperson
Joo-Yung Lee
Managing Director
+1-212-908-0560
or
Media Relations:
Alyssa Castelli, +1-212-908-0540
alyssa.castelli@fitchratings.com