Game Over, CIT

NEW YORK--(BUSINESS WIRE)--CIT Group Inc. (NYSE: CIT), a leading provider of financing to small businesses and middle market companies, today announced that it has been advised that there is no appreciable likelihood of additional government support being provided over the near term.

The Company’s Board of Directors and management, in consultation with its advisors, are evaluating alternatives.

Finally one not too big to fail (not surprisingly, the one who services Main Street). How many billion in CDS was Goldman long CIT? Due to the lack of an 80% unionized workforce, Obama will not hold a press conference on how Steve Rattner will get the company out of chapter in 30-45 days.

And here is the summary assessment compliments of Egan-Jones:

Synopsis: No help - " no appreciable likelihood " of US support near term is a massive blow to all CIT stakeholders. Unfortunately, given CIT's distressed state, there are no other likely capital providers. Calls might be made to large sophisticated investors such as Buffett but success is unlikely. Liquidity will be pressed and we would not be surprised by a filing in the near future. CIT reported weak March 2009 results with operating income sliding from a $2M loss last year to a $453M loss this year. Interest income fell by $174M and provisions rose by a stunning $288M. Over the past two years CIT's shares have fallen from $60 to merely $1.53 providing a market cap of just $637M vs. $60B of debt. The short term debt will suffer along with all other debt.

Comments

[amitch5903:]

Someone else will fill the gap like always. You have developed an "every company that other companies depend on is too big to fail" mentality. Come join us back in the capitalist world!


On Jul 16 03:41 AM johnthebear wrote:

> That news should bring the market back to reality. I understand that
> without bailout, 300,000 retailers and 760 manufacturers could fold.
>
>
> You have it right... no unions involved,
>
> so low down, cheap politics if you ask me!
>
> Looks like a bad time ahead for IYR.

Jul 16 09:19 AM

[The Geoffster:]

Interesting comments about lack of union involvement and Wall St. vs. Main St. Political backlash is probably the most significant reason for no bailout. Ironically, this may play into Obama's hand if you believe he is more about reengineering society than the economy. Cap and Trade and Universal Health Care are more about implementing the leftist agenda than anything else. Should the Senate balk, Obama will be a one term President.

Jul 16 09:24 AM

[User 448883:]

Guys, it's CIT Group not Citibank. The government would never allow Citibank to fail. They spend too much money lobbying for that to happen.

Jul 16 09:25 AM

[David White:]

How soon we forget! When Lehman was allowed to go under, it wasn't supposed to hurt that much. It did! The credit markets seized up. Among others things Dry Bulk Shipping came to a standstill because there was no one to finance the voyages. Eventually others stepped in. CIT has a unique position too. It is big enough to make a huge difference in the small and medium business sector. Who is going to provide those loans immediately? I am not hearing any big plans for that. The apparent CIT bankruptcy will have huge ripple effects. Scoff at this "minor bank" at your peril.

The job numbers today were better than expected, but not that much better. Plus one has to believe that a lot of GM and Chrysler related job losses are looming in the darkness. When these are finally seen, the numbers may go back up. Plus a CIT bankruptcy may have a bigger effect in this area than many want to believe.

JPM's results were better than expected, but JPM's tier 1 ratio still went down dramatically. With S&P's downgrading of many CMBS's from AAA to BBB-, you can expect this situation to worsen as we go into the fall. Plus the single family home foreclosures are up 15% for the 1H 2009. This isn't good either. Are we about to see another round of capital raising by the banks? If so, we may see their prices fall dramatically this time. investors will only ignore dilution for so long.

Jul 16 09:30 AM

[knight:]

Dammed if you do and dammed if you dont for Obama around SA. If we would have bailed them out everyone would be complaining if he doesnt you complain there as well. Tough crowd. Although I dont agree with his handling of the economy I acknowledge the tough situation he has been put in and its not his doing either

Jul 16 09:48 AM

[montanamark:]

this isnt complicated - its raw politics. no unions and no campaign contributions = no bail out. could add no GS counterparty exposure.
this is the chavez gov at work.

Jul 16 10:33 AM

[Mayer Amsch...:]

Sorry, I'm an idiot - I had believed that CIT was owned by Citibank. I don't know what gave me that impression - I do know their names are similar but I knew they were separate companies - but I thought they were a division of Citi.

Jul 16 11:03 AM

[ain't no fo...:]

There has been anecdotal talk that some consumers and small businesses have seen better lending opportunities recently from some of the banks - we'll see if that helps any of the businesses with Cit loans.

A presumably large number of businesses have drawn down something like $500 million in their Cit lines of credit this week alone, so at least some of them had the brains to be proactive here and may have enough working capital to get by on temporarily if all else fails.

Maybe some of the businesses with loans at Cit SHOULD be going down the tubes - the Cit paper must be absolutely schit ugly because NOBODY wants to touch it, guarantee it or take responsibility for eventually working it out... so maybe capitalism still breathes, even if its still in its iron lung.

And who knows, maybe after GS's or JPM's CDS's pay off there will suddenly be some bids showing up for what's left of Cit's "assets."

Stranger things have happened, eh?

(ain't no fortunate son, formerly wpdragon)

Jul 16 11:26 AM

[Supersuperman:]

See this is how I don't understnad how would the consumer level be recovered, combining lack of support to SME and high unemployment rate:

www.wealthalchemist.co.../

Jul 16 12:07 PM

[long roh:]

Does anyone really believe that CIT was well-positioned to continue making these kind of loans? The comment below is just bearish propaganda. I'm sure there are plenty of other institutions to step into the breach -- and who will likely cherry-pick any good employees still left at CIT.


On Jul 16 09:30 AM David White wrote:

> How soon we forget! When Lehman was allowed to go under, it wasn't
> supposed to hurt that much. It did! The credit markets seized up.
> Among others things Dry Bulk Shipping came to a standstill because
> there was no one to finance the voyages. Eventually others stepped
> in. CIT has a unique position too. It is big enough to make a huge
> difference in the small and medium business sector. Who is going
> to provide those loans immediately? I am not hearing any big plans
> for that. The apparent CIT bankruptcy will have huge ripple effects.
> Scoff at this "minor bank" at your peril.
>
> The job numbers today were better than expected, but not that much
> better. Plus one has to believe that a lot of GM and Chrysler related
> job losses are looming in the darkness. When these are finally seen,
> the numbers may go back up. Plus a CIT bankruptcy may have a bigger
> effect in this area than many want to believe.
>
> JPM's results were better than expected, but JPM's tier 1 ratio still
> went down dramatically. With S&P's downgrading of many CMBS's
> from AAA to BBB-, you can expect this situation to worsen as we go
> into the fall. Plus the single family home foreclosures are up 15%
> for the 1H 2009. This isn't good either. Are we about to see another
> round of capital raising by the banks? If so, we may see their prices
> fall dramatically this time. investors will only ignore dilution
> for so long.

Jul 16 12:12 PM

[Swashbuckler:]

Agree with Tyler. CIT isn't on the government's list of favorites. For the big shots in the government, watching CIT go down the tubes is no different for them than going to take a pi$$. But they'd move heaven and earth if it was one of their $uck buddies (GS,Citi,Wells). If the federal government ever runs out of money, and I think China may ultimately have a say in that, the bailouts could become moot.

Jul 16 12:32 PM

[ERCaptain:]

CIT may restructure and reemerge from this. As in many bankruptcy situations, current stocks holders are wiped out, bond holders become stock holders in the new CIT, and the company reemerges without the massive amounts of debt.
This would keep CIT alive in it's niche, and the nightmare scenario of the businesses they support going under would not materialize.
I haven't seen one report that says there is any other financial institution that is ready and willing to take on the role that CIT has in the market. Loans to small businesses generally used to be privately funded. CIT is THE provider to many of the countries retailers, manufacturers, transportation industry companies, and supply companies. Smaller local traditional banks aren't big enough to do these loans, the very large banks didn't take them on, and private lenders are not in the business any more.

Jul 16 12:40 PM

[Pax Americana:]

[CIT] apparently provides "factoring services" to over a million sme, Nationwide, with [cit] proably filing for Chapter 11 friday, will this not initiate further bankrupcies as a liquidity crisis rears its head, on already distressed small companies,seems to me if your "big enough" or "politically hooked up" you will be fine, for every else well thats too bad! Just does not seem to be any joined up thinking in goverment looking at the overall picture?

Jul 16 01:17 PM

[amitch5903:]

Or... GE capital buys just the good loans for cheap and CIT fails to exist.

My way is a little more simple.


On Jul 16 12:40 PM ERCaptain wrote:

> CIT may restructure and reemerge from this. As in many bankruptcy
> situations, current stocks holders are wiped out, bond holders become
> stock holders in the new CIT, and the company reemerges without the
> massive amounts of debt.
> This would keep CIT alive in it's niche, and the nightmare scenario
> of the businesses they support going under would not materialize.
>
> I haven't seen one report that says there is any other financial
> institution that is ready and willing to take on the role that CIT
> has in the market. Loans to small businesses generally used to be
> privately funded. CIT is THE provider to many of the countries retailers,
> manufacturers, transportation industry companies, and supply companies.
> Smaller local traditional banks aren't big enough to do these loans,
> the very large banks didn't take them on, and private lenders are
> not in the business any more.

Jul 16 01:18 PM

[ERCaptain:]

Press release minutes ago said that it was likely that this would be Chapter 11 bankruptsy, i.e., reorganization.

Not a Chap 7 liquidation.

Jul 16 05:09 PM

[ERCaptain:]

Not to say that Chap 11 doesn't lead to eventual liquidation...
such as is the case with Lehman.

Jul 16 05:13 PM

[Blackeyebart:]

Lets imagine what would have happened if CIT was bailed. All those small businesses would have a direct line through their favourite political representative for special treatment from CIT.

Unreasonable - but hey, you gotta ask!

The political risk gets worse for Obama as you descend from the towering heights. He will know that.

Jul 16 07:03 PM

[Fighting Yoda:]

As long as Govt is deciding who will fail or succeed we are in big trouble - you either need unions or Goldman on your side.

Jul 16 10:21 PM

[Up Yours SP500:]

When Obama initiated the second stimulus package after Bush, only a couple billion went to small business with the majority going to Wall Street banks. What Obama doesn't realize is that nearly 1,000,000 businesses have CIT as their factor, and if access to credit with CIT adversely affects them, come election 2012, forget the unions, those thousands of businesses will remember how they got screwed on Main Street while Wall Street profited.

Full disclosure, CIT is a factor for us with a lot of wholesalers we do business with. I cannot even begin to tell our clueless government what the aftermath of this bankruptcy will be, especially on businesses in California (a state that is already facing a budget crisis). Keep in mind, companies are "loading up" (to put it mildly given the economic climate) on inventory for the Halloween, Thanksgiving, X Mas season, and without CIT as a factor, there is guaranteed to be accelerated business bankruptcies across the U.S. as companies will not be able to secure other credit (what banks are lending right now?), hence have no inventory in their "peak" months. Watch how many small business bankruptcies will come to fruition in December and January 2010.

Obama, you screwed small business, and rewarded crooked Wall Street. How are we ever going to trust you or Wall Street from this point forward?

Jul 16 11:52 PM

[spope33:]

CIT was a good business, beaten down by circumstances and a few bad decisions, that they got out of. They were continuing to do business right, which is why I entered into a bond position with them, but on July 13 I bailed out. I could not believe the
market, even by Weds. 15, did not see what was going on. There was no way the administration would help out CIT bondholders. (Remember -- bondholders are "speculators".) I was amazed at the support levels for both the stock and bonds, through Wednesday,

Jul 17 01:56 AM