CIT Group, a New York-based bank holding company that provides lending, advisory, and leasing services to small and middle market businesses, has entered into an agreement with the Federal Reserve Bank. The Agreement requires regular reporting to the FRB, as well as the submission of plans and certain restrictions related to corporate governance, credit practices, capital and liquidity and the company’s businesses.
The bank has also adopted a Tax Benefits Preservation Plan (Rights Plan). It has claimed that the Rights Plan is designed to protect its ability to utilize its net operating losses and other tax assets, preserving value for the benefit of all stakeholders and will not impede the company’s ability to pursue restructuring or strategic opportunities.
This value could be reduced if the company experiences an ownership change under US federal income tax rules, which occurs if one or more 5% shareholders have aggregate increases of 50% in their CIT ownership over a three year historic period. The Rights Plan reduces the likelihood that CIT experiences such an ownership change by discouraging any person or group from becoming a 5% shareholder.
