(Reuters) - The Federal Reserve Bank of New York removed restrictions on small-business lender CIT Group Inc (CIT.N) imposed after the financial crisis, paving the way for a higher capital return to shareholders and a possible buyout.
CIT shares rose as much as 7.4 percent to their highest in more than two years after Thursday’s announcement.
CIT has been operating under an agreement with the Federal Reserve since August 2009, giving the regulator broad powers over the company’s capital plans and risk management.
“In my view, the fact that they have actually got the written agreement lifted now increases the likelihood that they can finally start to return capital,” Janney Capital Markets analyst Sameer Gokhale told Reuters.
BTIG analyst Mark Palmer said the company could return more than $2 billion to shareholders, given its current Tier 1 capital levels.
CIT became a bank holding company in December 2008 just before it received $2.3 billion of bailout money. It suspended its dividend in April 2009 and filed for bankruptcy seven months later.
“The fact that this has happened is positive because it is confirmation that CIT has met all the terms of the written agreement, there’s nothing lurking out there that investors should be concerned about,” Janney’s Gokhale added.
CIT is an attractive acquisition target and a Canadian bank with excess capital may be attracted to its relatively high-yielding commercial assets and its small-business lending portfolio, BTIG’s Palmer said in a note.
Reuters reported in February that CIT, led by former Goldman Sachs (GS.N) and Merrill Lynch executive John Thain, had explored a possible sale to banks including Toronto-Dominion Bank (TD.TO) and Wells Fargo & Co (WFC.N).
“I think the removal of a regulatory overhang could facilitate a deal and it simply makes it a cleaner proposition for the acquirer,” Palmer told Reuters.
CIT shares were up 7 percent at $47.57 at 1245 ET on the New York Stock Exchange.
Reporting by Aman Shah in Bangalore; Editing by Sreejiraj Eluvangal