Pressuresfrom the commodities industries continued to push railcar utilization ratesdown at CIT GroupInc. in the first quarter, and executives expect that trend toendure for some time.
NorthAmerican oil production is likely to fall further over the next year or so butthen start to stabilize, according to Chief Risk Officer Rob Rowe. Utilizationtrends in the railcar segment will lag domestic oil production by about sixmonths, Rowe explained on an earnings conference call.
CIT'srail utilization rate hit an all-time high of 99% in the fourth quarter of 2014 but started toslip the following year as crude oil prices plummeted. The measurement hadticked down to 96% by the fourth quarter in 2015 and fell further to 94% in thefirst quarter of 2016.
CEOEllen Alemany said that while the utilization rate is expected to fall into thelow-90s in 2016, she still anticipates the rail business earning double-digitpretax returns.
Theenergy industry's struggles may also lead to higher nonaccruals. In a slidedeck presentationfor first-quarter earnings, CIT said it could experience about $100 million inadditional energy-related nonaccruals for the rest of the year if currentmarket conditions persist. That would lead to an incremental provision of about$30 million to $40 million. Oil and gas loans make up $945 million, or about3%, of CIT's total loans.
Onthe strategic sales front, Alemany said CIT is still on schedule to sell itsCanada and China platforms by the end of the year and told analysts andinvestors that a deal for the Canada business could come even earlier than that.Separating its commercial aircraft leasing business is CIT's "No. 1priority," Alemany said, and the company is in talks with a "widevariety of parties" to do just that. The timing for such a split remainsunchanged, she added. Former CEO John Thain said in December 2015 that it would take at least 12months to spin off or sell the division.