CIT Goes Boom

Nov. 2.09 | About: CIT Group (CIT)

Hope you didn't buy any CIT on the hope of a bailout!

Nov. 1 (Bloomberg) -- CIT Group Inc., a 101-year-old commercial lender, filed for bankruptcy with financing from investor Carl Icahn after the credit crunch dried up its funding and a U.S. bailout failed.

The practical impact of this is likely to be:

  • Their factoring business is unlikely to be significantly impacted. This is a very profitable line of work, and while I have often (and still do) argue that any business using it is certifiably insane, it should continue.
  • Their "general" lending, however, is almost certain to be severely curtailed. I have seen estimates that it could fall by as much as 90%, and that seems reasonable to me.

For many small businesses the latter could be particularly acute. I would also expect the margins on their factoring business to be adjusted (better for them, worse for retailers) which could put a further squeeze on their small and mid-sized business clientele.

This will leave a mark - we'll have to see how bad it gets for retailers in the coming weeks and months, but being right in front of the holidays it cannot be a welcome development.