Garnet Capital Advisors Blog

EXCERPT: CIT and First Citizens are merging in an effort to better compete for deposits and loans and bolster their balance sheets to weather a recession. Other regionals may follow suit and dump their underperforming assets to make room for more robust ones.

First Citizens and CIT Group are set to merge in a deal that would create the 19th largest bank in the US by assets.

The merging of the two mid-sized banks would create a $100-billion financial institution in an all-stock deal valued at approximately $2.2 billion. The deal would help catapult First Citizens' assets to more than $100 billion, while deposits would soar to over $80 billion.

When the deal is done, ownership of the new bank would be split approximately 61:39 among First Citizens stockholders and CIT stockholders, respectively. CIT Group stockholders will receive approximately 0.06 shares of First Citizens class A stock for every owned share of CIT common stock.

New Deal Will Help Banks Withstand the Uncertain Economic Environment

Both banks expect to increase their earnings per share (EPS) by 50 percent after factoring in cost savings.

The boost in EPS should help the merged firm better manage economic uncertainty. Banks that can boost healthy assets and diversify markets while keeping costs down can better weather economic turmoil, especially given the situation surrounding the current global health crisis.

The First Citizens name would be retained, as would the bank's headquarters in Raleigh, NC, and Nasdaq stock ticker, "FCNCA."

Merger Will Help First Citizens and CIT Compete More Effectively

First Citizens has been looking for a way to compete effectively but lacked the products and expertise to do so. The merger with CIT Group will help provide First Citizens with the competitive edge it seeks and spike its efforts to capitalize on commercial banking opportunities across a broader range of markets.

The deal would marry the strengths of each bank; namely, First Citizens' wide array of banking products and cost-effective retail deposit franchise and CIT Group's nation-wide commercial lending prowess.

Scale and Diversification a Priority

The cross-selling opportunities are also colossal, but the pandemic's effect on the economy still magnifies the need for banks to scale and diversify. And deals like this can certainly drive such endeavors.

Other regional banks have taken notice of the recent merger announcement as they, too, consider opportunities for scale and diversification.

Providence, R.I.-based Citizens Financial Group, for instance, believes the deal is a sound one and makes sense from a funding base point of view. For a while now, CIT has been attempting to secure a stronger funding base, and this merger can help the bank take advantage of First Citizens' substantial retail funding operation.

The merger has been approved by the boards of each company and is expected to close sometime during the first half of next year if regulatory and stockholder approvals are granted.

The CIT and First Citizens merger is one in a wave of regional banks looking to bulk up in competing for deposits and loans and bolster their balance sheets to weather a recession. A result of all mergers is the dumping of unwanted business lines or underperforming assets. As such, banks should consider these types of sales prior to, and post-merger, and Garnet Capital can help with these transactions.

Browse white papers today.