CIT Group's Bankruptcy Plan: Goodbye Common and Preferred Stock 15 comments
November 02, 2009
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On Sunday, CIT Group (CIT) filed for bankruptcy protection with nearly 90% of its debt holders voting in favor of the agreement. The key provisions of the agreement are:
- Emergence sought by year-end
- Operating entities remain unaffected and highly liquid
- Continue lending to small and middle market businesses
- "Under the proposed prepackaged plan of reorganization, all existing common and preferred stock will be cancelled upon emergence"
Bloomberg reported: "The U.S. Treasury Department said it won’t recoup much, if any, of the $2.33 billion of taxpayer money that went into CIT, the largest firm to go bankrupt after getting a federal bailout."
CIT had been trading with hopes shareholders would not be wiped out. I want to make sure all my readers view the CIT Bankruptcy Press Release so you understand that the currently trading shares are worthless:
CIT had been trading with hopes shareholders would not be wiped out. I want to make sure all my readers view the CIT Bankruptcy Press Release so you understand that the currently trading shares are worthless:
"Under the proposed prepackaged plan of reorganization, all existing common and preferred stock will be cancelled upon emergence"
This bankruptcy is not a surprise, but taxpayers will probably lose the $2.33 billion we invested in the company.
CIT hopes to emerge from bankruptcy in 60 days.
CIT hopes to emerge from bankruptcy in 60 days.
Disclosure: I have no position in CIT in either my personal account or my newsletter portfolios.
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From the new 8K.
>>xml.10kwizard.com/fili...
>>>>>&g...
Reorganization;
Preferred Stock, Series A, B, C and D Contingent Value Rights
Common Stock No Recovery
>>>>>&g...
Geithner is nothing but a thief stealing from taxpayers money he would rather cheat than pay himself. If you are an investor always bet against the taxpayers. You can't help but win. It is like throwing money on the sidewalk outside a restaurant. After you eat go see if it is still there.
Make sure no bondholders lose any money. Rush in with taxpayer money first at all cost. Both Dems and Repubs are equally bought/bad.
Finally I have some great recommendations for treasury. I think Dick Fuld, Jimmy Cayne and Ken Lewis are available. They are the only ones who measure up to the excellence of Geithner that I can think of.
Geithner must stay up late at night to plan this rape of the innocent tax payer.
It's the same version of "accounting" as is being used to make Q3 numbers look so good. Yes, there are a FEW companies with robust business activity. Overall, the true result is NET LOSS for both public and private economic activity.
Making the middle class poorer will not lead to "recovery". And the underlying government policies are gutting the middle class.
CIT had issued three preferred stocks (two in 2005 and one 2008), all of which were "non-cumulative." For risk-adverse preferred stock investors, that should have been a red flag, especially with the 2008 issue (Series C). The crisis in the financial sector was well under way by then.
A cumulative preferred stock dividend requirement means that if the company misses a dividend payment to you, they still owe you the money; any missed dividends accumulate with cumulative preferred stocks.
For example, the Big Banks that failed over the last two years (Lehman, Fannie, Freddie, New Century, WaMu, Bear Stearns) were issuers of non-cumulative preferred stocks (IndyMac had no preferreds trading), while the Big Banks that survived through acquisition (National City, Countrywide, Merrill Lynch, Wachovia) issued cumulative preferred stocks.
While those investing in the non-cumulative preferreds were wiped out, the dividends from these acquired Big Banks, and their cumulative preferred stock issues, continue to this day; not one payment was missed.
Intuitively, this makes sense; stronger companies will have the confidence to step up to the cumulative dividend requirement.
While there is no guarantee that companies issuing cumulative preferreds will never fail, the relationship between the cumulative preferred dividend provision and company strength should not be ignored by preferred stock investors.
Non-cumulative preferred stocks are a major weakness of preferred stock ETFs, which include 30% to 90% non-cumulative issues.
The non-cumulative nature of CIT's preferred stock issues was a flashing light that CIT preferred stock investors would have done well to pay more attention to.
Many Happy Returns,
Doug K. Le Du, author of Preferred Stock Investing
PreferredStockInvestin...
PreferredStockInvestin...
May i know those shares i bought on trading platform are classified under preferred or common?
On Nov 03 04:14 PM jacky87 wrote:
> I am new in this stock market as i just have opened a trading account
> barely 4 months ago.
>
> May i know those shares i bought on trading platform are classified
> under preferred or common?
On Nov 03 02:56 PM Doug K. Le Du, author of Preferred Stock Investing wrote:
> CIT preferred stock investors (or their broker/advisors) should have
> known better. There is a strong relationship between the existence
> of the "cumulative" dividend provision of a preferred stock issue
> and the stability of the issuing company.
>
> CIT had issued three preferred stocks (two in 2005 and one 2008),
> all of which were "non-cumulative." For risk-adverse preferred stock
> investors, that should have been a red flag, especially with the
> 2008 issue (Series C). The crisis in the financial sector was well
> under way by then.
>
> A cumulative preferred stock dividend requirement means that if the
> company misses a dividend payment to you, they still owe you the
> money; any missed dividends accumulate with cumulative preferred
> stocks.
>
> For example, the Big Banks that failed over the last two years (Lehman,
> Fannie, Freddie, New Century, WaMu, Bear Stearns) were issuers of
> non-cumulative preferred stocks (IndyMac had no preferreds trading),
> while the Big Banks that survived through acquisition (National City,
> Countrywide, Merrill Lynch, Wachovia) issued cumulative preferred
> stocks.
>
> While those investing in the non-cumulative preferreds were wiped
> out, the dividends from these acquired Big Banks, and their cumulative
> preferred stock issues, continue to this day; not one payment was
> missed.
>
> Intuitively, this makes sense; stronger companies will have the confidence
> to step up to the cumulative dividend requirement.
>
> While there is no guarantee that companies issuing cumulative preferreds
> will never fail, the relationship between the cumulative preferred
> dividend provision and company strength should not be ignored by
> preferred stock investors.
>
> Non-cumulative preferred stocks are a major weakness of preferred
> stock ETFs, which include 30% to 90% non-cumulative issues.
>
> The non-cumulative nature of CIT's preferred stock issues was a flashing
> light that CIT preferred stock investors would have done well to
> pay more attention to.
>
> Many Happy Returns,
> Doug K. Le Du, author of Preferred Stock Investing
> www.PreferredStockInve...
> PreferredStockInvestin...
So does it means that we must all dump our CIT shares now? I was hoping that CIT can resume trading when they come out from their bankruptcy. Is there any chance they will resume trading in NYSE as right now, they are over at OTC market.