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Cit Goes Bankrupt As Bailout Talks Collapse. Chapter 11 On Friday.

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CIT Bailout Talks Fall Apart, Bankruptcy May Loom

By: Reuters | 15 Jul 2009 | 08:01 PM ET Text Size

CIT Group, a major lender to small- and mid-sized U.S. businesses, said on Wednesday that bailout talks with the government had ended, a development that heightened the chances the company would file for bankruptcy.

"Discussions with government agencies have ceased," CIT said in a statement. "There is no appreciable likelihood of additional government support being provided over the near term."

CIT said its management, directors and advisers were evaluating alternatives.

The announcement followed last-ditch talks in which the Treasury Department had expressed concern about a worsening liquidity crunch at New York-based CIT, and indications that government aid would not put the lender on a path to recovery.

Treasury, in a later statement, said the government needed to keep the threshold high for exceptional aid to individual companies, adding that the United States had a powerful set of financing mechanisms to help restart overall credit markets.

Founded more than a century ago, CIT's problems mushroomed in recent years in the wake of Chief Executive Jeffrey Peek's decision to expand into potentially highly profitable but riskier areas such as subprime mortgages and student loans.

If it were to go bankrupt, it would join Lehman Brothers Holdings and Washington Mutual among large U.S. financial services companies to collapse since the credit crisis accelerated last September.

It would also show the possible limits of Washington's willingness to rescue companies, after multiple bailouts for much larger companies such as American International Group and Citigroup.

"At least in the eyes of the Fed and the eyes of the Treasury, we've turned the corner, such that the systemic kinds of risks facing the economy may be well past," said Mike Knebel, a portfolio manager at Ferguson Wellman Capital Management in Portland, Oregon, which recently sold CIT bonds.

Trading in CIT shares [CIT 1.64 0.03 (+1.86%) ] was halted on Wednesday afternoon, with the shares last trading at $1.65, up 4 cents. Standard & Poor's 500 stock futures were down 0.4 percent after-hours.

TARP Money Not Enough

CIT sought help even after it became a bank holding company in December so it could draw $2.33 billion of taxpayer money from the government's Troubled Asset Relief Program (TARP).

Treasury had been considering an aid package that included a temporary loan to give CIT room to strengthen its balance sheet by raising additional capital through debt or equity, a person familiar with the matter had said.

Other options had been access to Fed's discount window, as well as asset transfers, the person said. The person requested anonymity because the talks were private.

CIT's travails were a vexing problem for the Obama administration, which had proposed that Congress give the government the authority to unwind large, troubled financial firms in an orderly fashion.

Because regulators do not have that power yet, they had to decide whether to bail out a company whose collapse, while significant, would by itself likely not pose a "systemic" risk to the financial system.

Treasury has also been supportive of the Federal Deposit Insurance Corp granting CIT access to its government debt guarantee program, the person familiar said.

Asset transfers to CIT's banking unit would have required approval from regulators such as the FDIC, which is already heavy pressure to handle dozens if not hundreds of expected bank failures in the next couple of years.

The FDIC had also been reluctant to allow CIT to join other financial companies in issuing government-guaranteed debt under an existing program, believing that such options are designed for healthy institutions.

"Not all firms have to be saved and the government has to draw the line at some point," said James Barth, an economist at the Milken Institute.

"I don't think it's going to be a catastrophe or become another Lehman Brothers, given the FDIC's apparent concern about the quality of the assets."

An FDIC spokesman declined to comment.

Congress, Industry Groups Concerned

While CIT has shed from some of its riskier businesses, it still faced too much debt, including some $10 billion coming due in the year ending March 31, 2010.

Barney Frank, chairman of the House Financial Services Committee, said earlier on Wednesday he hoped the government could come up with a structured aid package for CIT.

"If CIT doesn't get structured help, then it will have a very negative effect, I'm told, on small businesses around the country," he said in an interview with Reuters.

Indeed, industry groups such as the National Retail Federation had argued that CIT's tentacles extended too far throughout the country to allow failure.

Steve Bartlett, chief executive of the Financial Services Roundtable, said 10,000 small businesses could be choked off from needed funds if CIT were allowed to collapse.

"This one is crystal clear," Bartlett said in an interview.

Copyright 2009 Reuters. Click for restrictions.

http://www.cnbc.com/id/31926789

From the CIT website:

The Vital Role of CIT

Over 1,000,000 business customers depend on CIT to provide the financing they need to run their businesses. And for more than 100 years, CIT has remained committed to the lending needs of the small and middle market – providing needed capital to markets that other larger and smaller financial institutions often don’t.

http://cit.com/about-cit/vital-role/index.htm

From the WSJ:

WASHINGTON – U.S. Treasury Department officials believe they will lose their entire $2.3 billion investment in CIT Group Inc., a spokeswoman said, which could mark the first loss of public money injected in banks through the Troubled Asset Relief Program.

http://online.wsj.com/article/SB124768727832747201.html

$2,300,000,000 pissed up the fu*king wall! :angry:

1,000,000 business owners financed by CIT! What would the knock-on effect of this collapse be I wonder?

Edited by MOP

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$2,300,000,000 pissed up the fu*king wall! :angry:

1,000,000 business owners financed by CIT! What would the knock-on effect of this collapse be I wonder?

I guess they don't owe anything to Goldman?

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I guess they don't owe anything to Goldman?

Funny you should mention that. I just had a look on TF, not sure if this correct:

Asimov: Thanx.

CIT has a $3 billion line of credit with Goldman Sachs, of which approx half has been drawn. For that reason alone, they will be bailed out. Lloyd Blankfein says Goldman’s exposure to CIT is not material. By which he means he has hedged bets against it too, and stands to gain no matter what happens.

If all else fails for GS, they can use a billion or two of reserve vintage AIG cash. As for CIT and the liquidity problem, not solvency, if T3, Paulson, Giethner, and Blair made them a bank... how come Sheila Blair doesn't step in and fund their liquidity problem?

Pretty hypocritical of the gang in Washington DC to pick and choose now.

I say let them all pay for their mistakes, not the taxpayers.

http://www.tickerforum.org/cgi-ticker/akcs...2678&page=4

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Looks like it's all over.

CIT Talks Fall Apart, Bankruptcy Filing Likely Friday

By: Reuters | 15 Jul 2009 | 10:27 PM ET

CIT Group, is likely to file for bankruptcy Friday, a source close to the company tells CNBC. The major lender to small-and mid-sized U.S. businesses had been surprised at the failure of bailout talks.

CIT is now pursuing a plan that is likely to include a chapter 11 filing on Friday.

"Discussions with government agencies have ceased," CIT said in a statement. "There is no appreciable likelihood of additional government support being provided over the near term."

The announcement followed last-ditch talks in which the Treasury Department had expressed concern about a worsening liquidity crunch at New York-based CIT, and indications that government aid would not put the lender on a path to recovery.

http://www.cnbc.com/id/31926789

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Funny you should mention that. I just had a look on TF, not sure if this correct:

http://www.tickerforum.org/cgi-ticker/akcs...2678&page=4

Ok, so they have bets hedged against as well, but i don't get how they can "gain both ways"... unless the game is rigged. Maybe I am just naive.

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http://www.cnbc.com/id/31926789

From the CIT website:

http://cit.com/about-cit/vital-role/index.htm

From the WSJ:

http://online.wsj.com/article/SB124768727832747201.html

$2,300,000,000 pissed up the fu*king wall! :angry:

1,000,000 business owners financed by CIT! What would the knock-on effect of this collapse be I wonder?

how much, this is getting stupid now.

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"Too big to not eat." - G.S.

:lol:

Well, apparently CIT have some juicy bits to sell out

http://www.bloomberg.com/apps/news?pid=206...id=a5twPLxaG23Y

CIT isn’t big enough to be a systemic risk, said Jason Mudrick, president of New York-based investment firm Mudrick Capital Management LP and a CIT bondholder.

‘Lending to small businesses wouldn’t stop,†Mudrick said, adding that CIT has valuable assets, including the unit that finances the retail industry. “Their factoring business could be sold in a heartbeat to a competitor,†he said. “It has the best technology in the industry and is CIT’s crown jewel.â€

Come on GS, show me the money :P

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I wonder how many businesses will go under as they fail to find financing elsewhere?

Not sure. We will find out soon enough though.

Edited by MOP

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funny, but GM, swallowed billions and still went bust....then a month later its not... strange where all that debt and other liabilities just disappeared..... course they dont just disappear, they appear as black holes months later on the creditors books.

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Ah, CIt were mentioned when there was that overnight financing blip at 7% the other week.

Have GS bet both ways on EVERYTHING?

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I wonder how many businesses will go under as they fail to find financing elsewhere?

How big are CIT compared to the likes of CITI and Wells Fargo etc...?

The sort of businesses that CIT are funding are the real engine of the economy, but the bankers and politicians seem to have lost sight of this. How much deeper can their heads go down in the sand ?

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4th biggest bankruptcy in US history:

"If you've not heard of CIT, this is probably a good time to get acquainted with the company", says Izabella Kaminska on FT Alphaville. "CIT is the third-largest US railcar-leasing firm and the world's third-biggest aircraft financier. It also funds about one million businesses, including 300,000 retailers. Barclays Capital estimates that if the company was to fail it would be the fourth-largest bankruptcy by assets in US history, in between General Motors and Enron".

But here's the key point. CIT might not be Goldman Sachs. It might not be seen as "systemically important." But as Sandra Jones points out in the Los Angeles Times, CIT is a "major cog in making sure orders get paid for and delivered to stores. Without CIT, retail shipments for the crucial holiday shopping season could be in jeopardy, and could in turn set off a new wave of bankruptcies among retailers and vendors."

http://www.moneyweek.com/news-and-charts/e...orse-14959.aspx

Edited by MOP

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They are still having a go at it by the looks of it...

CIT in Talks With Lenders to Prevent Bankruptcy After U.S. Refuses Bailout

http://www.bloomberg.com/apps/news?pid=206...id=adJFyS5t_S08

Will they get a last ditch reprieve ?

Will GS, JP etc.... want them to be saved. Perhaps GS have already told the Treasury want assets they want at firesale prices?

Why save it if you can get the assets on the cheap and the govt picking up some of the tab.

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CIT, Clients Scramble to Secure Lifelines

17, 2009.

Worries about the fate of CIT Group Inc. cascaded through the retail and manufacturing industries on Thursday, as companies stopped shipments and businesses worried about cash being tied up at the lender should it file for bankruptcy-court protection.

The disruptions were an indicator of the potentially wide fallout from a failure of CIT, which was unable this week to persuade the government to provide financial assistance.

CIT is a lender to 950,000 mostly small and midsize businesses. It is one of the nation's biggest players in supplying credit and cash advances to retailers and manufacturers, a business known as "factoring." CIT provides them cash upfront and over time, taking over the collection of their receivables and invoices.

If CIT were to seek bankruptcy protection, scheduled payments to customers could potentially be frozen by the court.

CIT services about 300,000 retailers and 1,900 manufacturers and importers scattered all over the world. CIT finances as much as $40 billion in receivables in the U.S., according to a company document.

Roy Calcagne, chief executive officer of Craftmaster Furniture, said CIT's troubles could disrupt the entire supply chain in the furniture industry. The loss of CIT financing would hurt everyone from the companies that supply fabric to North Carolina factories to importers that bring in finished furniture to sell to U.S. retailers, he said.

"There could be a huge ripple effect that I'm not sure the government is fully aware of," he said, "especially if you look at all the ways this impacts supply chains. It could be devastating for our industry."

http://online.wsj.com/article/SB1247791237...tml#mod=testMod

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Will GS, JP etc.... want them to be saved. Perhaps GS have already told the Treasury want assets they want at firesale prices?

Why save it if you can get the assets on the cheap and the govt picking up some of the tab.

Doubt any of them would want it on a long term basis - collecting trade receivables means dealing with real people like AP clerks earning less than $25,000 p.a. and GS etc are far, far too important to do that.

My own guess is that one of them will already have brokered a deal with the Chapter 11 administrator to parcel up the assets and sell them on to other players in the same game at a fairly knock down price and will take a huge fee out of the still warm corpse of CIT for having done that, and a huge fee from the buyers for brokering the finance to enable them to buy the assets. CIT bondholders will be left with cents on the dollar, and the shareholders with nothing. Vulture capitalism, I think they call it.

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CIT Group is in talks with JPMorgan Chase and Goldman Sachs Group for short-term financing of $2 billion to $3 billion as the lender looks for ways to avoid a potential bankruptcy, a source close to the company told Reuters.

http://www.cnbc.com/id/31954479

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