Hudson Executive, Other Investors Call for CIT Group to Break Up
February 01 2016 - 1:00PM
Dow Jones News
A new activist hedge fund started by two former J.P. Morgan
Chase & Co. deal makers has taken a stake in CIT Group Inc. and
wants the lender to break up, echoing a call that other investors
have quietly made in recent months.
Hudson Executive Capital LP, which Douglas Braunstein and James
Woolery started last year, on Monday disclosed in a securities
filing that it owns about 0.5% of CIT. Hudson Executive believes
the best strategy for CIT would be to sell off its various pieces
given the bank's recent underperformance, according to people
familiar with the matter.
Bank stocks have suffered broadly in recent months, but CIT
shares have fared especially poorly, falling about 26% so far in
2016. The stock currently trades around $29, just above the $27
price in December 2009 when CIT started trading again after
emerging from bankruptcy.
CIT is currently pursuing a sale or spinoff of its commercial
air business. Hudson Executive thinks the lender should also
consider selling its rail business and lending operations, the
people said.
CIT's outgoing chief executive John Thain said in December that
the company wasn't planning to sell off additional units. CIT
didn't immediately return a request for comment.
The lender reports fourth-quarter earnings on Tuesday.
Hudson Executive has said it aims to work with management teams
and has a roster of chief executives as its backers. Its founders
are longtime Wall Street executives and deal makers. Mr. Braunstein
was chief financial officer of J.P. Morgan and head of mergers and
acquisitions at the bank before that, while Mr. Woolery was its
co-head of North American M&A and then chairman-elect of law
firm Cadwalader, Wickersham & Taft LLP.
Other major shareholders have asked CIT's top executives to
pursue a sale of the bank's rail business, according to people
familiar with the matter.
Investors pushing for a breakup were encouraged by the asset
sales by General Electric Co.'s finance arm last year, according to
the people. Some of CIT's lines of business are similar and could
be attractive to the bidders that lost out on the GE assets, they
said.
Macquarie Capital analyst Vincent Caintic projects that CIT
shareholders could see shares reach $70 or more if the firm were to
break up into pieces, according to a November 2015 note.
The boom in activist investing has been slow to come to the
banking world in part due to the regulatory oversight lenders face
when making changes to their business operations. But some
activists have started to come into the sector recently, though
they are largely avoiding the biggest banks.
Hudson Executive is hoping to tap its own leaders' experience as
well as some of its investors with long careers building some of
the nation's biggest banks through deals, including Richard
Kovacevich, the former head of Wells Fargo & Co., and William
Harrison, the former head of J.P. Morgan Chase & Co.
The fund expects a growing volume of bank M&A and is
specifically focusing on the smaller banks within the group the
government has deemed systemically significant, one person
said.
The investors believe those banks are too small to handle the
costs of the increasing oversight, and make attractive targets for
bigger banks because they are familiar with the regulatory process,
the person added.
Hudson Executive on Monday also disclosed an 0.8% stake in
Dallas-based Comerica Inc.
Some tie CIT's problems to the fact that it is something of a
hodgepodge unique among banks its size. The firm owns planes and
railcars that it leases to airlines and railroads around the world,
does various types of corporate lending, and has an online bank and
dozens of OneWest branches in California.
Mr. Thain, who is retiring at the end of March, recently
acknowledged the firm's challenges.
"The world today doesn't like conglomerates, doesn't like
complicated stories," Mr. Thain told investors in December. "We're
obviously not—given where our stock is trading—getting a fair
valuation for [the air] business."
Write to Rachel Louise Ensign at rachel.ensign@wsj.com and David
Benoit at david.benoit@wsj.com
(END) Dow Jones Newswires
February 01, 2016 13:45 ET (18:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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