Dai-Ichi Kangyo Bank Is Prospective Buyer : Manny Hanny Expected to Sell Its CIT Group

Manufacturers Hanover Corp. said Monday that it is in “serious discussions” with Dai-Ichi Kangyo Bank Ltd. of Japan regarding joint ownership of its wholly owned CIT Group, a commercial finance company.

But industry analysts said Manufacturers Hanover will likely sell the unit and that it could bring up to $1.5 billion.

A Manufacturers Hanover spokesman wouldn’t comment beyond a brief statement issued by the New York-based banking company.

Analysts said Manufacturers Hanover will likely sell all of the commercial finance company to Dai-Ichi Kangyo as part of an effort to shore up its capital. The bank is among the most heavily exposed of major U.S. financial companies to Third World debt.

A Japanese news report said the deal was worth $1.5 billion.

“My sense is that they will go all the way,” said Keefe, Bruyette & Woods analyst James McDermott. “Manufacturers Hanover is under pressure to build its capital base.”

Manufacturers Hanover’s stock rose $2.875 a share to $42.50 on the New York Stock Exchange on Monday on the news of a potential sale of the unit, analysts said.

Analysts estimate that Manufacturers Hanover, the nation’s seventh-largest banking company, would gain $400 million from the sale of the unit.

Manufacturers Hanover acquired CIT Group from RCA Corp. in 1984 for $1.5 billion. RCA has since been taken over by General Electric.

CIT, a nationwide business financing company used mainly by mid-sized companies, had assets of $9.3 billion at the end of 1988. Last year, CIT’s profit was $120 million and it employed about 2,500 people.

“CIT is not a crown jewel. It is starting to make money, but after finance costs and amortization it does not add anything to Manufacturers Hanover’s bottom line,” said Bear Stearns analyst Mark Alpert.

Alpert said the sale of CIT for $1.5 billion would be “very positive,” reducing Manufacturers’ need for new capital, removing 13% of its assets off its books and eliminating $450 million of goodwill.

Analyst Lawrence Cohn of Drexel Burnham Lambert Inc. said the bank could use profits from the sale to build its Third World loan reserves, making it less exposed to Third World debt.

Another analyst said Manufacturers Hanover was doing everything it could in the next couple of weeks to raise its stock price so that it could sell common stock soon.

“It’s too bad they have to sell it (CIT) rather than making it work for them,” an analyst said. “Going forward, a money center bank has to have a unique business to survive. Commercial finance is such a lucrative business.”