Moody's affirmed the ratings of New York-based CIT Group Inc. and CIT Bank NA following its planned $1 billion acquisition of Mutual of Omaha Bank.
The outlook on the ratings remains positive.
Moody's Senior Vice President Warren Kornfeld said the deal would strengthen CIT's deposit franchise, expand its commercial lending and banking lines, and lower funding costs. CIT CEO Ellen Alemany said Mutual of Omaha's $4.5 billion in homeowners' association deposits to be acquired carry a cost of 63 basis points, which is lower than the bank's 2.33% cost of funds in the second quarter, according to S&P Global Market Intelligence data. CIT said the deal would lower its deposit costs by 20 basis points upon closing, expected in the first quarter of 2020.
Moody's Kornfeld also said while there are risks to the deal, the benefits would outweigh the risks in the long-run even with an expected short-term increase in debt leverage and the acquisition hampering CIT's earnings. He also said integration risks related to the deal are modest.
Moody's said the ratings affirmation reflects CIT's "financial transformation," which includes reduced usage of market funds, improved predictability of operating margins and more reliance on secured lending, which the rating agency views as less risky. The ratings also reflect the company's efforts to improve deposit quality, according to Moody's, but it said the quality of deposits following the purchase of Mutual of Omaha Bank will not be as fully developed as its competitors and the deal would not lower its funding costs that much compared with competitor banks.
