Is CIT too big to fail?
Filed under: Company News
CIT Group Inc. (CIT) leaked an internal report to Bloomberg indicating that 760 manufacturing firms may be at risk if the FDIC doesn't back its debt and the lender is allowed to fail. But so far the FDIC is taking the position that CIT is not a systemic risk. The internal report from CIT also states that its demise would precipitate a crisis for as many as 300,000 retailers. Obviously, CIT is trying to build support for an FDIC bailout.CIT says in its report that its collapse would impact "small and medium-sized businesses who rely on CIT to operate -- to pay their vendors, ship their goods to their customers and make payroll." If CIT files for bankruptcy and cuts off small and medium-sized businesses, these businesses likely would have no place to turn to because commercial lending markets are still frozen.
CIT took one step closer to filing bankruptcy when it hired Skadden, Arps, Slater Meagher & Flom, which is known for handling corporate bankruptcy filings. The company has already cut back on arranging new loans.
"Absent a change of heart on the part of the FDIC, it is difficult to see how CIT can survive," bond analyst Kathleen Shanely, told Bloomberg. "Fixed income investors have lost confidence in the viability of CIT's business model, which will make it extremely difficult for the company to fund its upcoming debt maturities and ongoing operations."
So now the FDIC has to determine which is the greater risk to taxpayers: allowing CIT to fail or backing the lender's bonds. CIT reported $3 billion in losses in the past eight quarters. In September, CIT reported $75.7 billion in assets and $68.2 billion in liabilities, including $3 billion in deposits. If the FDIC lets CIT fail it would be the largest bank failure since the seizure of Washington Mutual.
At some point, the government will have to stop bailing out banks. The country just can't afford to keep propping up poorly managed financial institutions. Will the FDIC let CIT fail or determine it's too big to fail? If CIT's estimates that 300,00 retailers and 760 manufacturing firms could be at risk is correct that's hundreds of thousands of more jobs that could be lost. Could letting CIT fail risk even higher unemployment? Or is guaranteeing more bad loans the greater risk to taxpayers?
Lita Epstein has written more than 25 books including Reading Financial Reports for Dummies.
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Reader Comments (Page 1 of 1)
7-13-2009 @ 9:13AM
nick said...
No! But they gave Obama millions so you can see something coming here. Wonder when UBS is going to let those names go who have been getting around paying taxes, want to see those high minded elite liberals who are on that list, wonder if Oprah and Soros are on it???
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7-13-2009 @ 11:18AM
Black American US War Veteran said...
These banks always talk this bullshit when it is bonus time,cut the dirty slimy serpent's head off and let it die.
O wait the US Government must feed the serpent more of your childrens future to keep the rich and foreign investors happy.
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7-14-2009 @ 6:19AM
Hoxsie said...
Yes CITI is too big to fail == which means that it must be liquidated and broken up and sold. Taxpayers are not going to put up with bailing out institutions which are so big that management cannot effectively manage them. Break the up into small pieces and let the vultures pick them over. I am sick of bailing out these big money grabbing wise guys! NO MORE OF IT!
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7-28-2009 @ 7:34AM
Brenda said...
Amen, Hoxie! I am sick as well of the government bailing out poorly run companies because they are "too big to fail". It's telling how these corporate "free market" capitalists are all about letting the little folk survive or die upon their own merits, but when the same rule is applied to them, it's suddenly a different story. "Too big to fail" has to become "too big to be allowed". I am angered beyond telling that my childrens' and grandchildrens' legacy is being hocked to reward these idiots for their bad decisions. I didn't ask to become an AIG shareholder. The money ripped from the middle class to save all those banks benefited nobody but the banks. It's just about time for another tea party, I think.
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