CIT Group on the Radar

This morning CIT Group (CIT) is crumbling as the FDIC refuses to backstop their loans due to deteriorating quality. If the US wanted to pretend it still believes in free market capitalism. they should let this "not too big to fail" financial fall into the ether. Then we can at least pretend we are not propping up zombie financial institutions all over the map. (Anyone claiming free market capitalism exists in the US is now banished to FOX News channel permanently in a state of delusion.) People seem to forget almost all the major banks now have the implicit backstop of the US government (much like Fannie Mae and Freddie Mac had for decades) behind them now, so when they beat their chest (as Citigroup did) when it can raise money without federal backstop, it's all really a farce.

If you wanted to see the free market truly in play you would have to have the US say, we will not firewall the largest US financial institutions... and we'd be right back to talking nationalization across the board in almost every major US financial company in America. Which is why it is so funny when we hear about the health of the banking industry or "how it's healed itself". So a tip of the hat to our US readers, whose taxes are the only reason we are not repeating the 1930s. Other than that ... green shoots. [Emphasis mine.]

• CIT Group Inc (CIT), a commercial U.S. lender struggling to finance its business, is pressing U.S. regulators to allow it to issue government-backed bonds to allay concerns over its financial health, the Financial Times reported on its website late on Wednesday.
• CIT converted to a bank holding company in the fourth quarter of 2008 to qualify for U.S. government funds, but it has been unable to issue government-backed debt as the Federal Deposit Insurance Corp (FDIC) has yet to approve its application.
• The FT cited people close to the situation as saying CIT, which has about $75 billion in assets, had already drastically cut lending, but warned that without the FDIC's assistance the company might be forced to ask the Treasury and the Federal Reserve for help.
• A former government official familiar with the situation told the paper CIT and the regulators were meeting almost every week but it was not clear why the FDIC had not yet approved the application.
• Fitch Ratings cut the lender's debt rating further into junk territory on Wednesday. Reuters had reported late Thursday that CIT may seek a debt exchange or asset sale if access to the government-supported lending program wasn't successful.

CIT Group Inc. operates as the holding company for CIT bank that provides commercial financing and leasing products, and management advisory services to the small and middle market companies worldwide. Its products principally include asset based loans; secured lines of credit; operating, capital, and leveraged leases; vendor finance programs; import and export financing; debtor-in-possession/turnaround financing; acquisition and expansion financing; letters of credit/trade acceptances structuring; and small business loans.

Disclosure: No positions

Comments

[Peter Iwano...:]

yea just let it fail. Reduce the glut.

Jul 10 03:40 PM

[FunnyMoney:]

The banks are all bankrupt... that's why the Fed was created in the first place.

Jul 10 03:51 PM

[R Lestyk:]

How can the FDIC refuse CIT because of its deteriorating credit when it was glad to approve lending to GMAC which had a much lower credit rating. It does not seem that we are applying the same rules to everyone.

Jul 10 04:09 PM

[FloridaBoy2:]

Thanks for the article.

Let them fail. Solid regional banks will purchase the assets.

Fitch Ratings cut the lender's debt rating further into junk territory on Wednesday. Reuters had reported late Thursday that CIT may seek a debt exchange or asset sale if access to the government-supported lending program wasn't successful.

The rating agencies are a joke. Bogus ratings are what started this mess. Why should they be trusted now?

Jul 11 08:25 AM

[cynewulf:]

How can the banks have healed themselves when real estate is still falling? And while we are on inane subjects,how about the new ,"better" Government Motors? They aren't selling cars.

Jul 11 08:33 AM

[Griller:]

For the first time in 20 years campaign contributions from the finance industry to Dems outstripped contributions to the Repubs (see opensecret.org).

Looks like CIT forgot to contribute, because there seems to be no record of any campaign contributions by CIT Group.

So, yeah, punish these guys with a vengeance to send a message to other finance companies that don't buy political influence by donating to Democratic presidential campaigns.

Jul 11 12:34 PM

[Lucky Duck:]

They are worth saving as they supply 10% of the small business loans and a sizeable portion of the factoring transactions that the apparel and furniture industries rely on to function. In case 1 we need small business for JOBS and in 2 & 3, I think we would want clothes and furniture, as no bank will take that risk.

Jul 12 08:41 AM

[Moon Kil Woong:]

CIT bought bad loans and insured bad loans just like AIG. The same reason why CIT should be allowed to fail is the exact same argument to let AIG fail. Even though the act is arbitrary since AIG was much worse at what they did, letting them fail is acorrect choice. I certainly wish we would choose to be fair and let AIG go belly up as well, but apparently it is a good business move to make sure you owe ton's to Goldman Sacs when they controlled the Treasury. Can you say crony capitalism?

Jul 12 01:03 PM