Wells Fargo & Co, (WFC.N) the fourth-largest U.S. bank, could boost its profits by buying CIT Group Inc (CIT.N) even if it pays a 33 percent premium for the specialty lender, Stifel Nicolaus analyst Christopher Mutascio said on Monday.
"CIT would make a financially attractive acquisition target" for Wells Fargo, Mutascio said in a report. A deal would combine Wells Fargo's "industry-low" cost of funds with CIT's $35 billion in higher-yielding assets. Wells Fargo would benefit, too, from acquiring CIT's tax-sheltering $4 billion of net operating loss carry forwards, he said.
Mutascio figured that Wells Fargo could pay $52 per share for CIT, or $10.5 billion, and raise its own earnings per share by 2 percent to 7 percent, depending on whether it paid with stock, cash or a blend of the two.
CIT shares traded at $38.95 on Friday. The stock is up nearly 12 percent this year.
Wells Fargo spokeswoman Mary Eshet and CIT spokesman Curt Ritter declined to comment.
Wells Fargo has $1.34 trillion in assets and a stock market value of $186 billion.
CIT is led by veteran Wall Street executive John Thain. He was named CEO in February 2010 to continue the company's restructuring following its bankruptcy in 2009 amid losses on subprime mortgage assets.
Thain has paid down high-cost debt left from the bankruptcy, but CIT still pays 4.37 percent for core debt funding and 2.02 percent for deposits, compared with Wells Fargo's total funding cost of 0.46 percent, according to Mutascio.
(Reporting by David Henry in New York; Editing by Lisa Von Ahn)