What is CIT Group Inc. (NYSE CIT)? and why is it near bankruptcy? CIT is a century old lender to about 760 manufacturing clients and 300,000 retailers. CIT also owns a bank holding company which received $2.3 billion dollars last year under the TALF program.
Now the firm is in financial trouble. A key sticking point is that the FDIC will not allow the lender into its bond guarantee program created last year to unfreeze debt markets. This according to a Bloomberg news release.
As you can guess all havoc is breaking loose in CIT securities. $565 million of 5.125% notes due in 2014 fell 4.5 cents on the dollar to 53 cents. CIT's stock dropped 36 cents to $1.17 as of 9:30 am. Credit default swaps on CIT rose 2 percentage points to 39.5% upfront. This was the highest since October 17.
Over the weekend CIT has been in discussions with regulators to find ways to avoiding a full fledged bankruptcy. Such a move would affect thousands of small and medium sized business that depend on CIT for funding. Such breaks in credit lines would affect the survival of many of these small businesses.
CIT is busy transferring assets to its bank holding company to shore up its capital base. However, unless the FDIC relents and lets CIT move forward with its application to the bond guarantee program, CIT may go the way of Washington Mutual.
Should CIT be allowed to fail?
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