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CIT Prepares To File Bankruptcy

Submitted by Tyler Durden on 07/11/2009 14:15 -0400

The WSJ reporting that the lender to over 1 million small sized businesses has hired Skadden Arps in preparation of a bankruptcy filing. The formerly largest competitor to GE Capital for any and every semi- and fully-toxic loan imaginable, has been so far outright denied a bailout by an administration that has rarely professed a non-socialist approach to corporate demise. Unfortunately for the company, whose new HQ office lobby on 42nd street looks more like a club out of meatpacking flashing either a blue or deep purple colored decor, may be Obama's first Guinea pig in financial failure since Lehman.

#093d72;">CIT Group Inc., a lender to almost a million mostly small and midsize businesses across the country, is preparing for a possible bankruptcy filing after so far failing to win a government guarantee to help it borrow, said people familiar with the matter.

CIT declined to comment on whether it was preparing a filing or why it had retained Skadden Arps. But if CIT did file, the consequences could be considerable, because the 101-year-old company, as of March 31, had $68 billion of liabilities.

A bankruptcy filing by CIT could affect thousands of small borrowers, from Dunkin' Donuts franchisees to restaurant owners andclothing retailers. "If CIT were to go away, it would take a financing option away from franchisees who want to buy stores or expand their networks," said Kate Lavelle, chief financial officer of Dunkin' Brands, the which owns Dunkin' Donuts and has had a 50-year relationship with CIT.

On Friday, many CIT bonds slumped on heavy trading, and its stock tumbled to its lowest since the lender went public in 2002, further hurting its chances of raising capital from the private sector without more government aid. CIT bonds that mature in February 2010 were trading at 83.5 cents on the dollar and yielding over 40%, indicating that debt investors think it is unlikely they will be repaid in full. CIT shares sank 33 cents, or 18%, to $1.53, after dipping as low as $1.13 during the day.

According to confidential documents reviewed by The Wall Street Journal, CIT has in recent weeks tried to assess the consequences of a failure of the lender on Middle America. Among them: Companies would lose access to $4 billion in untapped credit lines and thousands of manufacturers could run into problems.

If "run into problems" isn't the most greenshoot colored euphemism for a virtual halt in credit line access for small and medium corporations (that nobody really even wants now in the first place), I don't know what is. However, as in the Lehman failure, the CIT bankruptcy will merely expose the thousands of unintended consequences that the government, in its newly minted centralized planning role, has no possible way of fully evaluating, and the pain could likely be as pervasive and acute as last September.

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Sat, 07/11/2009 - 14:44 |

Anonymous

$68bn??? Are you kidding me? This isn't a lot of money these days. CIT just will call Obama when he is back from his trip and the problem is solved. :-)

Sat, 07/11/2009 - 14:45 |

Anonymous

CIT must not present any counterparty risk for
Goldman Sachs. Or, Goldman has a lot of "naked" CDS' on CIT's bonds. Or Goldman is short on CIT.

Or all of the above.

Sat, 07/11/2009 - 17:50 |

deadhead

gs mentioned about their exposure to CIT in today's WSJ....GS claims it has collateral and is hedged as a matter of normal course.

Sat, 07/11/2009 - 19:11 |

Arm

GS is hedged? Ok, that usually translates to short.

Sun, 07/12/2009 - 15:13 |

dza

Or that they are preparing to let the squid eat!

Sat, 07/11/2009 - 15:06 |

ptoemmes

I pains me greatly to xref a link to CNBS, but I guess this may be realted: http://www.cnbc.com/id/31855523

White House Weighing Assistance for Small Businesses The Obama administration is considering a number of possibilities for assisting small businesses throughout the United States, reports said Friday According to the reports, the administration has not decided on a specific plan yet. Still, talks are in place in order to lend a hand to the sector, which has been hit particularly hard by the current economic recession.

The White House and the Treasury Department are considering ideas such as taking a part of the $700 billion bailout money for large banks and using it to open credit for small businesses.

Pete

Sat, 07/11/2009 - 23:08 |

rabbit

In 1985 the deregulation of interest rates on deposits began. Prior to that time bank were not allowed to pay interest on deposits. The removal of this prohibition led to competition between banks for deposits and hence to interest payments.good articles http://www.bit.ly/12

Sat, 07/11/2009 - 15:52 |

Prof Gulliver

The government will let CIT fail. They gotta save their Bailout Bucks^TM for GE Capital.

Sat, 07/11/2009 - 16:38 |

DaylightWastingTime

Commit it then to the flames, for it can be nothing but sophistry and illu

sion

Sat, 07/11/2009 - 16:40 |

Quantum Noise

Memo to CIT: next time (in case there will be a next time), before you give loans to anyone who has a pulse and a business plan on a napkin, make sure you hedge your positions by owning a "business channel".

Sat, 07/11/2009 - 17:11 |

Anonymous

Oh boy this exposes a whole new set of problems with the "system"...

It's a "Bailout for Baby Firms" coming... CIT gone... maybe Goldman will buy it since it is a commercial bank now.. they could easily snatch a lot of commercial deposit accounts... that would give them a low cost of funds... and they could get a Maiden Lane too from the New York Fed... hive off the toxic junk like JPM... hey Dudley... cue up Blackrock.

Sat, 07/11/2009 - 17:52 |

deadhead

CIT is not in the deposit gathering biz via commerical accounts...

Sat, 07/11/2009 - 19:29 |

Anonymous

Citi will fail or not, based on GS holdings alone. If someone knows GS's bet, they can make easy money.

Sat, 07/11/2009 - 22:33 |

BabaBooey

CIT's gone--there is no chance anyone buys it in its current state........this I know

I do think GE will take a hit from this too. Maybe it can be spun as being long term positive, but I just dont see it. I cant imagine GE going the way of C or AIG. I cant see it for the life of me!! I could care less either way, dont own and never have owned shares of GE-but it would really amaze me if it did.

I want to start an over/under Tyler on AIG:

When does AIG see $2.00 a share.

a) within 12 months

b) within 6 months

c) within 3 months

d) within 1 month

e) never-for the next year the stock stays above $10

Comment on what you think happens to the stock.

--BabaBooey

Sun, 07/12/2009 - 00:44 |

ng2amarinefunk (not verified)

CIT a nice "safe to fail" financial strictly local, unlike
AIG's major participation in $50 trillion credit default swaps NOW THAT WAS TOO BIG TO FAIL

CIT will make a nice fear-story stock, on our next leg down
the $7 trillion hot sideline money, greedly buying indiscriminately any stock since 9 March...about shot that
wad of cash...

Watching the re-turn downwards on the Baltic index now in progress....

Sun, 07/12/2009 - 03:30 |

Anonymous

CIT made the mistake of getting into the subprime mortgage business and they are apparently going to pay a high price for that error.

It's core business and competencies are important to the economy in a way that a blurb about lines of credit of small and medium sized businesses doesn't really capture.

It is one of the few remaining practitioners of maturity factoring.

Historically, it has been willing to lend money on the liquidation value of equipment.

It is the kind of lender where firms that are being "de-marketed" out of banks would ordinarily find a temporary home during a recession.

It may be that the problems with MBS and CRE are the WMD of this crisis, but at some point C&I loans at insured deposit taking institutions (which phrase used to be a description of a bank), are going to become another huge intractable problem impairing any kind of economic recovery.. And without CIT, there is going one less place to lay off substandard and adversely classified loans (to speak in the language of regulatory examination of bank loan portfolios).

While everyone believes efficient markets will take up distressed credits, Obama & Company, the private equity outfit running things in Washington, could learn something from the old-line practitioners at CIT about how loan workout is done.

Sun, 07/12/2009 - 06:00 |

Anonymous

CIT will be allowed to fail because GS holds 2-3x ratio shorts via CDSs. Bank Club Fed wins because credit withdrawn from the little customers will come dearer at the Big Bankers.
The standard Panic of 1873 and 1907 play book. Just like pirates, the little guy gets a taste, plays the game and gets "rich", then finds out it's Thanksgiving, and they're "what's for dinner!" As I remember, it started out "We the People….",
not, "We the Bankers". It was be a great country, America, and will be again once we successfully deFed ourselves from the oppressors. They are in the spotlight to be disqualified for gross dereliction of duty.
ZeroHedge is a great venue for a mock trial. Mock the ones who fail to prosecute. Nothing stands the assault of ridicule.

Sun, 07/12/2009 - 12:08 |

Anonymous

Only two things to do: get rid of lobbyists and get rid of the Federal Reserve. "US" needs to issue their own banknotes like Kennedy was going to do. Goldman Sux probably had him popped for trying to do that. Soon as he was out of the way, we went back to the Fed way of doing things. SO many folks do not understand that the Fed is a private, for profit, institution, and Goldman Sux really is a giant blood sucking vampire squid as Matt Taibbi puts it and he is spot on. See http://www.rollingstone.com/politics/story/28816321/the_great_american_b...

Sun, 07/12/2009 - 17:57 |

dza

Is your comment about the FED based on a view that Central Banks, structurally don't work, or that the FED can't realistically be independent?

Sun, 07/12/2009 - 17:18 |

Bubby BankenStein

A few questions for those equipped with tin foil thinking caps:

Given we have nationalization of GM & Chrysler, partial nationalization of financial services, etc., why not kick it up a few notches.

Phantom Nationalization is the new Paradigm!

Lets start with PPIP. This will augment previous initiatives in the quest for public ownership of assorted bad debts.

Then we come to question how much of the S&P 500 market cap is owned by the public at large through holdings resulting from "Open Market" operations of the PPT through it's Agents

What will be the effect of TARP II initiatives / innovations to bail out Small Business?

What will be the effect of TARP III for States and Municipalities?

We could continue this list for a long time.

Its Phantom Nationalization I tells ya!

Are we Freaking Doomed?

Tue, 03/29/2011 - 02:16 |

fiona

CIT Prepares To File Bankruptcy

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