At the end of March CIT had $6.5 billion in cash, with debt due within one year of $17.1 billion. They had $7.4 billion of equity and $45.2 billion of long term debt, a debt to equity ratio of 86% debt, 14% equity. They've lost $3 billion in the last 12 months. This is before the earnings announcement coming on Thursday of this week which I'm sure will be a disaster. They make loans to small businesses. Small businesses are going under in record numbers. It is clear they were not running their business well before the crisis. The losses will continue to mount as the economic conditions continue to worsen. Only a fool would loan this company another $3 billion. Below are this list of fools. Or are they fools?
The U.S. Government told CIT they would not rescue them last week. The U.S. Government has also awarded management contracts to various financial firms and has distributed billions in TARP funds to other financial firms. It appears that there are a number of firms that have received government contracts and/or TARP funds that have decided to rescue CIT. Did they decide to rescue CIT because they are an excellent credit and they will surely get their money back, plus 13% interest? What Risk Manager in their right mind would approve?
My contention is that there are unspoken agreements with the U.S. Government that these firms will be taken care of for saving CIT. It would have been a public relations disaster for Obama to let CIT go down after saving a disaster like Citigroup. Many small businesses would have gone belly-up. Here are my questions:
Did anyone in the Treasury make any assurances verbally or in writing that they would help these lenders in any way?
Were these lenders pressured by the Government to make these loans?
Was more business promised by the Government for saving CIT?
Did the Federal Reserve put any pressure or make any threats or promises to these lenders?
ANNOUNCED LAST WEEK
The U.S. Treasury named BlackRock Inc., Invesco Ltd. and seven other managers for its Public- Private Investment Program, in an effort to remove as much as $40 billion in distressed assets from financial institutions. GE Capital Real Estate, Marathon Asset Management LP and AllianceBernstein LP were also selected. Oaktree Capital Management LP, RLJ Western Asset Management LP, the TCW Group Inc. and Wellington Management Co. were the other firms selected to participate.
ANNOUNCED TODAY
Barclays Capital is arranging the funding, said another person familiar with the negotiations. The financing will carry an initial rate of about 10.5 percent, the New York Times said. Creditors including Boston-based hedge fund Baupost Group LLC, CapRe, Centerbridge Partners LP, Oaktree Capital Management LLC, Pacific Investment Management Co. and Silverpoint Partners agreed to provide the money, the Financial Times reported. CIT’s advisers, including JPMorgan Chase & Co.and Morgan Stanley, discussed with other banks about a debtor-in-possession loan to fund the company’s operations should it enter bankruptcy, people with knowledge of the matter said last week.