John Thain's CIT buys OneWest for $3.4bn

CIT Group, a US lender run by the former chief executive of Merrill Lynch John Thain, agreed to acquire OneWest bank for $3.4bn, in a rare deal of significant size for the banking sector.

If approved by regulators, the deal will propel CIT above $50bn in assets, meaning the bank would be designated a "systemically important financial institution" by the Federal Reserve, a category that comes with heightened scrutiny.

"This is really the first transaction of this size," said Mr Thain, chairman and chief executive of CIT. "It's also the first transaction that will create a Sifi."

CIT has been expanding its deposit base as it seeks to finance its loans to midsized US companies at a cheaper rate. The acquisition should give CIT access to a new source of retail deposits, Mr Thain said, and further diversify its financing.

The deal will double the size of CIT's banking subsidiary, boosting assets to $67bn and deposits to $28bn as it adds 73 branches in Los Angeles and Southern California.

The deal brings together two formally troubled lenders. OneWest was formed out of the remnants of IndyMac, the California-based lender that was salvaged by a consortium including JC Flowers, George Soros and John Paulson during the financial crisis.

Shares in the bank rose 10.6 per cent in early morning trading in New York to $48.62.

Big US bank deals have been few and far between as executives have been wary of heightened scrutiny of the banking system. Large legal settlements over mortgage-backed securities have also shown banks being held responsible for the misdeeds of their acquired companies before they owned them.

Under the deal, investors in IMB, the holding company of South California-based OneWest, will receive $2bn in cash and 31.3m CIT shares. CIT bank will merge into the privately owned OneWest bank which is regulated by the Office of the Comptroller of the Currency.

Mr Thain, who negotiated the sale of Merrill Lynch to Bank of America at the height of the financial crisis, has led CIT since 2009 and last month agreed to buy Direct Capital, a lender based in New Hampshire.

Mr Thain told analysts this morning: "If you look at our businesses, our commercial lending businesses fit well together, and we have a similar credit philosophy. We spent a lot of time talking about how they make loans and how we make loans and our credit philosophies are very similar."

Other bank deals have been on hold. M & T bank's deal to acquire Hudson City Bancorp has been on ice for almost two years as regulators criticised M & T's anti-money laundering procedures.

Mr Thain said this acquisition was "transformational" and will combine CIT's national middle market lending platform with OneWest's wholesale lending and branch banking franchise.

Steven Mnuchin, chairman of IMB will join CIT as vice-chairman and will also become a board member. Alan Frank, an independent director from OneWest will also join CIT's board.

CIT has been focused on transport finance, best known for leasing commercial aircraft and railcars. It also lends to small and midsized firms in North America.

The acquisition came as the bank reported earnings per share of $1.29, up from 91 cents a year ago.

CIT was advised by JPMorgan while Goldman Sachs and Bank of America Merrill Lynch represented IMB.

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