CIT Group Inc. (CIT:US), the commercial lender led by former Merrill Lynch & Co. Chairman John Thain, increased its quarterly dividend (CIT:US) 50 percent amid frustration from investors seeking bigger capital returns.
The bank intends to raise the payout to 15 cents from 10 cents beginning in the third quarter, New York-based CIT said today in a statement ahead of an annual investor day presentation. The firm, which hired Thain to lead a turnaround after the company’s 2009 bankruptcy, has about $2 billion in excess capital, exceeding what regulators said is needed to cushion against potential losses.
“I get paid mostly in stock, so I am personally in line with you,” Thain, 59, said at the investor conference in New York. “I’m well aware that my job is to create long-term shareholder value and I can assure you that my management team and I are focused on doing that.”
CIT, which has $48.6 billion of assets, got permission from the Federal Reserve last year to reinstate a quarterly dividend and buy back shares. At the end of the first quarter, the company had a Tier 1 common equity ratio of 16 percent, above the 10.9 percent average ratio of the 10 biggest U.S. banks, according to data compiled by Bloomberg.
The extra capital is depressing CIT’s return on equity, a gauge of profitability, said Mike Mattioli, an analyst at John Hancock Asset Management in Boston.
“They’re well overcapitalized,” Mattioli, who helps oversee more than $269 billion including shares of CIT, said in an interview last week. “They don’t have to do anything with it, but as it sits there on the balance sheet, it’s unproductive.”
CIT said Tuesday it agreed to buy Direct Capital Corp., a Portsmouth, New Hampshire-based lender with assets of about $500 million. Thain said today that CIT will look for other acquisition opportunities, including buying another bank.
“We need our bank to be bigger in order to continue to fund more of our assets,” Thain said. “If we could find the right opportunity, a bigger bank would be better.”
CIT fell 22 cents to $44.94 at 9:31 a.m. in New York. The shares have slid 13 percent this year, compared with the 4 percent advance of the Standard & Poor’s 500 Financial Index.
Thain struck a deal to sell Merrill Lynch and its mortgage-related securities to Bank of America Corp. in 2008 as the credit crisis crippled the U.S. economy. Less than two years later, after CIT went bankrupt and wiped out $2.3 billion in government bailout funds, Thain was hired to stabilize the firm.
CIT reversed a 2012 loss of $588.6 million and posted a profit of $681.6 million last year, the most since the company emerged from bankruptcy. The firm has exited businesses such as student loans and some international operations, restructured its management team and increased deposits to $13.2 billion from $4.5 billion at the end 2010. Still, there’s pressure from investors to return more capital.
“Investors are frustrated the pace of capital returns isn’t faster,” Mark Palmer, an analyst at BTIG LLC, said in a phone interview before the dividend increase was disclosed. “From an operational standpoint, the company is moving forward slowly.”
Of the 20 analysts surveyed by Bloomberg, Palmer and 12 others rate CIT a buy. CIT has drawn takeover speculation, and Thain has said the logic of selling to a larger bank is “obvious.”
Thain bought 40,000 shares of CIT on May 15 at $41.54, 48 cents above the stock’s 52-week low, boosting his total holdings to 443,000.
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