NEW YORK (Reuters) - CIT Group (CIT.N) said on Thursday that it had applied to become a bank holding company and would seek capital under the U.S. government’s program to fund banks, sending the commercial finance company’s shares soaring as much as 26 percent.
CIT, which has been struggling to finance its operations during the credit crunch, said in a statement that it had been engaged in discussions with federal and state regulators for several weeks.
Although the U.S. government directed its initial round of investments at banks, credit card issuer American Express Co (AXP.N) became a bank holding company on Monday. The Wall Street Journal reported on Wednesday that the company was seeking about $3.5 billion under the government program.
New York-based CIT said it hoped that once it has approval to convert its charter from an industrial bank to a Utah state bank, it will qualify for funds from the U.S. government’s Troubled Assets Relief Program, which is injecting about $250 billion of capital into U.S. banks.
“This is not a cure-all for stemming credit losses,” said BMO Capital Markets analyst David Chiaverini. “It will help in absorbing those losses, but it won’t change the fundamentals, which are decidedly weakening.”
Chiaverini estimated that, if it wins approval for government cash, CIT could receive as much as $2 billion. The TARP program has typically been giving banks an amount equivalent to about 3 percent of their risk-weighted assets.
The program was initially intended to provide capital to healthy financial institutions. As recently as October 21, U.S. Treasury Secretary Henry Paulson said in a television interview: “We are not going to use this money to prop up failing banks.”
Last month, CIT posted a third-quarter loss of $317.3 million, and Moody’s Investors Service said it might lower the company’s ratings on concerns about the company’s liquidity position, deterioration of its assets, and its borrowing costs.
CIT shares were up 38 cents, or 11.3 percent, at $3.74 in midday New York Stock Exchange trade after rising as high as $4.23 earlier in the session.
Reporting by Elinor Comlay; Editing by Lisa Von Ahn