Regulators have removed a major barrier in CIT Group's plans to act more like a bank.
The small business lender said Wednesday that the Federal Deposit Insurance Corp. (FDIC) and the Utah Department of Financial Institutions had lifted cease-and-desist orders against its banking subsidiary, CIT Bank.
The orders had barred the bank from increasing the amount of brokered deposits above the $5.53 billion it held as of July 16, 2009, when the orders were issued. Imposed just a few months before CIT entered bankruptcy, the orders also prevented the bank from providing any funding to its parent.
CIT emerged from bankruptcy protection in December 2009 and has since made progress on shrinking its balance sheet and paying down debt. In February of last year it brought on John Thain as its chairman and chief executive.
Thain, the controversial former head of Merrill Lynch, was tasked with not only repairing CIT's relationship with regulators ($2.3 billion of government bailout funds were lost in the bankruptcy) but implementing a bank-centric model to help steer the company away from a reliance on the capital markets for funding.
Though the removal of the cease-and-desist orders removes a major roadblock for the company in its efforts to expand its funding channels, it may be more symbolic than anything else at this point, said John Stilmar, director of financial services equity research at SunTrust Robinson Humphrey.
"The lifting of the cease-and-desist order at the bank largely removes a negative stigma, though it had very little practical impediment to the rebirth of CIT," Stilmar wrote in a research note Wednesday. "The primary benefit is the ability to raise brokered deposits at the bank above $5.527 billion. Given the significant excess liquidity at the bank, we continue to believe that CIT has no intent to grow its brokered deposits business over the near to intermediate term."
He added: "While this has no practical change to CIT business, the removal of the negative sentiment associated with the cease and desist is helpful with other constituencies, such as rating agencies."
CIT's shares surged more than 8% to $43.80 in midmorning trading, amid broad market gains.
It is scheduled to release first-quarter results on April 27.