UPDATE 2-CIT's profit misses; expects margin pressure to continue

Tue Apr 29, 2014 2:05pm EDT

* Q1 earnings $0.55/share vs est of $0.87

* Net finance margin falls to 3.66 pct from 4.43 pct

* Provision for credit losses rise to $36.7 mln from $19.5 mln

* Shares fall as much as 8 pct (Adds comments from conference call, analyst comment, updates shares)

By Avik Das

April 29 (Reuters) - Small-business lender CIT Group Inc reported a lower-than-expected quarterly profit due to a drop in fee income and weaker margins resulting from the sale of non-strategic businesses, sending its shares down as much as 8 percent.

The company's provision for credit losses also almost doubled to $36.7 million from $19.5 million a year earlier.

Margin pressures are likely to continue as CIT streamlines its operations, Chief Executive John Thain said on a conference call with analysts on Tuesday.

CIT plans to exit Asia, Latin America and Europe by the end of 2014 as part of its strategy to focus on its U.S. lending and leasing business, Chief Financial Officer Scott Parker said.

The company does not break down revenue by region but Parker said the businesses outside the United States were "subscale".

"As they sell non-strategic assets, which tend to be higher-yielding, it creates a downward bias towards their finance margin and the new assets are being originated at very compressed pricing, driving down margins," SunTrust Robinson analyst Eric Wasserstrom said.

CIT's net finance margin fell to 3.66 percent in the first quarter ended March 31 from 4.43 percent in the same quarter of 2013, mainly reflecting the sale of high-margin loans it had made to Dell Inc's European business.

The company said earlier this month it would sell student loans and related assets worth $3.6 billion to education loan provider Nelnet Inc.

CIT also said it had approved an additional $300 million share buyback this month, bringing the total authorization to $607 million for 2014.

EARNINGS DROP

CIT's interest and fees on loans fell 10.2 percent to $314.5 million. Total interest income fell about 9.4 percent to $323.3 million.

Net income fell about 33 percent to $109.1 million, or 55 cents per share in the quarter.

Analysts on average had expected earnings of 87 cents per share, according to Thomson Reuters I/B/E/S.

The company's banking arm reported a 24 percent jump in deposits to $13.1 billion, helping it to get access to cheaper funding. CIT has been refinancing its long-term debt to reduce its interest burden and improve earnings.

Interest payments on the company's long-term debt fell about 4.25 percent to $239 million in the quarter.

New York-based CIT, which lends to small and medium-sized businesses that do not qualify for traditional bank credit, filed for bankruptcy in 2009 after a debt exchange offer and bailout talks failed. The bank emerged from Chapter 11 bankruptcy protection later that year.

Thain, who headed Merrill Lynch before it was sold to Bank of America Corp at the height of the financial crisis, was named CIT CEO in February 2010 to put the company back on track after it struggled with losses on subprime mortgage assets.

Shares of CIT, which has a market value of more than $9 billion, were trading at $43.27 on Tuesday on the New York Stock Exchange. CIT shares have lost about 17 percent this year. (Reporting by Avik Das in Bangalore; Editing by Saumyadeb Chakrabarty and Don Sebastian)

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