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Subprime Lender Thrives Even as Prior Execs of Former Parent May Face Jail

Former CEO & CFO accused of stealing $600 million

October 20, 2003

By PATRICK CROWLEY


Getting spun off from scandal-plagued Tyco International Ltd. was probably the best thing that could have happened to CIT Group Inc.

CIT, a diversified financial company with $50 billion in assets, is a major residential and commercial mortgage financier. Tyco acquired CIT in March of 2001 for $9.2 billion, but then spun off CIT just about a year later in an Initial Public Offering that raised $4.6 billion, making it one of the largest IPO's in U.S. history.

In one of its final quarters as a part of Tyco (quarter ended Dec. 31, 2001), CIT had income of $239.1 million.

But while Tyco is operating under the cloud of a white collar criminal investigation into the activities of its former executives, CIT was never accused of the fraud and corporate abuse that is surrounding its former parent company.

CIT has, however, emerged as a major part of the New York trial of former Tyco CEO L. Dennis Kozlowski and former CFO Mark Swartz. The pair is accused of using Tyco's money as their personal slush funds, spending $600 million in stolen cash on works of art, yachts, plush apartments, lavish parties and more.

Kozlowski, 56, and Swartz, 45, are charged with larceny and enterprise corruption and face up to 30 years each in prison if convicted. The trial is taking place now in a New York state court in Manhattan.

CIT came up during the trial on Oct. 9, when an internal Tyco document showed that former board member Frank E. Walsh Jr. was paid $20 million in undisclosed finders fees for his role in Tyco's acquisition of CIT.

Walsh plead guilty to breaking New York's general business and securities laws and agreed to pay $22.5 million to settle the charges.

Tyco spun off CIT as it tried to raise cash and restructure itself after the charges against its executives were revealed.

CIT paid a price in the second quarter of this year, when it recorded a net loss of $1.9 billion and wrote down another $2 billion in goodwill.

But the company appears to be on the right track.

Third quarter earnings are due out Thursday (Oct. 23), and the mean estimate from 13 analysts who follow the company has earnings per share at 67 cents for the quarter, 70 cents for the fourth quarter, and $2.61 cents for the year, according to CBS MarketWatch.com.

Goldman Sachs raised its rating on CIT from "in-line" to "outperform" on Sept. 26, according to a statement from the Wall Street investment banking firm.

CIT has been around since 1908, when it was founded as Commercial Credit and Investment Co. It went public in 1924.

After several mergers and acquisitions over the years Japan's Dai-Ichi Kangyo Bank acquired 60% of CIT from Manufacturers Hanover Bank, which had purchased the company in 1984 from RCA. The name became "CIT Group" in 1986.

Dai-Ichi Kangyo purchased another 20% in 1995. After two stock offerings in 1998 and 1999 the bank's ownership was reduced to 44%. Also, in 1999, CIT acquired Newcourt Credit Group and became "one of the world's largest secured lenders with more than $50 billion in managed assets and $2.5 billion in revenues," according to information posted on CIT's corporate web site.


Patrick Crowley is a political reporter and columnist and former business writer for The Cincinnati Enquirer. Email Patrick at: [email protected]
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