Capital Distribution Plan

CIT Group Inc.’s (CIT) shares traded up slightly early Thursday on news it beat analyst estimates slightly even though it also revealed that the Federal Reserve had privately given its capital distribution plan a “qualitative objection” over concerns around risk management.

In addition, CIT Group also disclosed that it received a negative charge from a reverse mortgage servicing unit it obtained as part of its blockbuster 2015 merger with OneWest.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks with serious upside potential in the next 12-months. Learn more.

Nevertheless, CIT Group’s adjusted earnings in the second quarter per share beat analyst expectations. It had adjusted earnings of $0.80 a share when taking into account an after-tax charge of $163 million related to problems with the reverse mortgage servicing business, Financial Freedom. It acquired the unit as part of its $3.5 billion merger with OneWest in 2015. This beat an aggregate mean earnings-per-share estimate for CIT Group collected by FactSet for the quarter of $0.78 a share.

“The qualitative objections to CIT’s first [stress test] submission, with only modest buybacks allowed, is likely to weigh on the shares today,” noted Keefe Bruyette & Woods analysts in a report Thursday. “Noisy quarter with a large loss related to the legacy OneWest Financial Freedom reverse mortgage business, which was moved to discontinued operations..”

In a call with analysts Thursday, CIT Group CEO Ellen Alemany said the company is “fully cooperating” with a previously disclosed investigation being led by the U.S. Housing and Urban Development agency’s Office of Inspector General into reverse mortgages, which began shortly after the close of the OneWest acquisition last year.