Analyst: Wells Fargo (NYSE: WFC) Should Acquire CIT Group (NYSE: CIT)
The banking industry in the United States is going through major structural changes, as regulatory requirements are forcing banks out of certain lines of business (like prop trading), while also limiting revenue upside in other products (like debit card fees). Amidst this changing landscape, some banks may choose to reinvent themselves, shaping their future through sales of non-core business (like Citigroup (NYSE: C)), or perhaps through acquisition (like Wells Fargo (NYSE: WFC) may consider).
Recently, an analyst commented that Wells Fargo should consider expanding by acquiring rejuvenated commercial lender CIT Group (NYSE: CIT) for more than $10 billion. Wall Street sources told FOX Business’s Charlie Gasparino that CIT Group CEO John Thain is actively shopping the company in hopes of landing a buyout bid from a larger bank. The sources said Thain, a former CEO of Merrill Lynch, began shopping CIT after failing to acquire ING Direct, which was bought by Capital last year in a $9 billion deal. Thain has many transformative deals on his resume, notably working with the New York Stock Exchange when they went public, before moving over to Merrill Lynch which he helmed during the financial crisis of 2008 up to their sale to Bank of America (NYSE: BAC).
Stifel Nicolaus analyst Christopher Mutascio said Wells Fargo would likely pay $52 a share, or $10.5 billion, for CIT. Shares of CIT jumped on the rumors, a welcome reprieve. CIT nearly collapsed under the weight of the financial crisis, filing for a massive bankruptcy in 2009. Today, CIT is a public company once again, employing more than 3,500 people.
The San Francisco-based Wells Fargo, is a banking behemoth with $1.34 trillion in assets, and can leverage the strengths of CIT group, while giving them the scale they have never had before. CIT’s fragile state since the financial crisis has caused their cost of borrowing to be comparatively high, restricting profits at the firm and the strength of their rebound. CIT would benefit from Wells Fargo’s extremely low cost of funds, which is nearly four percentage points less than CIT’s core debt funding, Mutascio said.
Whether Wells Fargo strives to acquire CIT or not is purely speculation at this point, though synergies clearly exist across the franchises and it would make sense for both parties, and their respective shareholders.