CIT files bankruptcy, $2.3 billion in taxpayer funds likely lost
Filed under: Company News, CIT Group
CIT Group, the giant small business lender, filed for a "pre-packaged bankruptcy" Sunday night carrying some $71 billion in assets, after last ditch attempts to avert such an outcome failed. The development will keep the doors open at the 101-year-old small business lender, but there will be heavy losses, including, most likely, $2.3 billion in taxpayer bailout funds.CIT survived the Great Depression, but it couldn't weather the Great Recession. Its demise may be a sign that the wave of crumbling, sub-prime mortgage-infected financial giants has not ceased.
CIT's bankruptcy filing will be the fifth largest in U.S. history, after Lehman Brothers, Washington Mutual, Worldcom and General Motors. CIT's board of directors met Sunday and approved the Chapter 11 procedure, to be taken in New York's Manhattan bankruptcy court. The bankruptcy will be "pre-packaged" so as to allow the company to keep operating and emerge by the end of the year.
The filing comes after the CIT made a last-ditch debt-exchange offer, which the company's bondholders rejected. On Friday, billionaire Wall Street gadfly Carl Icahn -- who claims to be CIT's largest debt-holder -- agreed to support the prepacked bankruptcy filing. Icahn had previously lobbied for CIT's outright liquidation, but failed to convince other debt-holders to support him.
"Approximately 85% of the Company's eligible debt participated in the solicitation, and nearly 90% of those participating supported the prepackaged plan of reorganization," the company said, adding, "approximately 90% of the number of debtholders voting, both large and small, cast affirmative votes for the prepackaged plan."
CIT's Utah bank, which has about $10 billion in assets, wouldn't be part of the bankruptcy filing, according to media reports.
First taxpayer loss; shares worthless
Bondholders are looking at receiving about 70 cents for every dollar in company debt. The company's common shares will likely be worthless.
The bankruptcy will mark the first time taxpayer funds will be lost since the federal government began its economic stimulus package to help pull the country out of the worst downturn since the Great Depression. CIT received $2.3 billion as part of the Troubled Asset Relief Program, or TARP in December 2008. Those funds helped stabilize CIT, but the giant lender was undone thanks to billions in bad student loans and sub-prime mortgage loans.
While the loss of taxpayer funds is significant, the Wall Street Journal pointed out things could have been far worse. "Despite likely losing its $2.3 billion investment, the U.S. government saved possibly billions more in losses when it rebuffed further bailout requests over the summer, after concluding CIT's demise wouldn't threaten the broad financial system," the paper observed.
Out of bankruptcy by year's end
Dealbook suggests that CIT's filing will test "whether a financial company can survive the Chapter 11 process."
"Bankruptcy has long been considered a death knell for lenders, whose very existence depends on the confidence of its creditors and customers," wrote Michael J. de la Merced. "The company's struggles have been watched with interest and trepidation by analysts and the thousands of small and mid-sized businesses that borrow from CIT."
Dealbook reported that CIT will be represented in bankruptcy by the investment bank Evercore Partners, the law firm Skadden, Arps, Slate, Meagher & Flom and the turnaround consulting firm FTI Consulting.
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Reader Comments (Page 1 of 22)
11-01-2009 @ 6:49PM
John George said...
Only 2.3 billion tax dollars lost? Haa! That's a mere pittance for the One Party Politic Big Guys in Congress and not even lunch money for the Very Big Cutthroat Bedouins of Wall Street who own all of the Big Guys in Washington! Why, it's just Chump Change, I tell you, and we are the Chumps!
Reply
11-01-2009 @ 7:27PM
rustupid said...
Absolutely correct.Brilliant post.We have a 1 party system owned by wall street and the multi national corporations.And yes,we are chumps.
11-01-2009 @ 7:49PM
c brownlee said...
we need a purge not a surge in dc
11-01-2009 @ 7:43PM
kdnorcutt said...
How right you are,. Now sent a message to these wasteful spenders by voting them all out!
11-01-2009 @ 8:40PM
Dereck Dodson said...
The "REAL TRUTH"
The World Fortune has "Appropriated", "Garnished", and "Consumed" the entire Finance Industry Worldwide in a Maryland District Court Case with the FDIC regulation "No failing Bank can Merge with another failing Bank".
There are no Civilian "Taxpayer Dollars" involving "Base Financing" in any World Fortune Government Owned Corporations or Businesses. There are only "World Fortune Owner Tax Dollars". The World Fortunes Government Owned Corporations and Businesses pay Taxes to the 99th Percentile Worldwide. Don't be mislead by the Media's articulation and terminology. "Tax Diversion Operations" are the only reason the World Economy is breathing any life right now. The Government will "shrink and dissolve" until Private World Fortune Corporations organized with Colleges and Universities run all Federal, State, County, and City Operations effectively killing dirty politicians "Red Tape".
Every Investment Bank (including CIT), Bank, Credit, Loan, and Finance Company lost the ability to use my money, therefore all Monetary Collection Accounts have been "Levied" are being routed to my Garnishment Payments.
All the lies being told by Media Reporters and Columnists are the total cause of all the "holdup". Government Regulatory Agencies are at fault for not utilizing the "Truth in Media Act" that Congress spent all that time passing.
The World Fortune is moving to completely end "World Poverty" and the "ponzi schemers" are attempting to "bribe and blackmail" their way into a blockade of this with their criminal "political figureheads".
The Maryland District Court Case can be Tracked at:
www.Courts.State.MD./District under "Case Search"
Case Number.: 0502-0007498-2008
The Finance Industry was already "Privately Owned" by me and will pay out this Appropriation and Garnishment forever under this Court Ruling.
11-01-2009 @ 8:51PM
Average White Boy said...
Well, at least that $2.3 billion wasn't a total loss. I'm sure plenty of the top executives pocketed that money in the form of bonuses for a job well done. A job well done is helping to bankrupt a company and put all your employees on the streets. I should have gotten a college education on how to swindle hardworking people.
11-02-2009 @ 1:38AM
Bob Sirop said...
That money was loaned to them under the Bush era in Dec. 2008. Meanwhile the current adminastration has refused to lend them more. get your facts straight.
11-02-2009 @ 8:55AM
Nimnicht said...
I agree to voting out all who are now in Washington, and limiting the new congress to one term each! Don't give any in congress a chance to settle in and live off the perks and payoffs!
11-13-2009 @ 2:30AM
joe said...
i told you so -- wHEN THE BAILOUT STARTED i SAID BUY PREFERRED STOCK SO WE WOULD SHARE AS THE COMPANY RECOVERED AND WOULD HAVE SOME SAY IN MANAGEMENT PERKS. wE ACTUALLY DID THAT TOWARD THE END OF THE BAILOUT. tHEN THEY GOT THE GOVERNMENT TO EXCHANGE THE PREFERRED STOCK TO COMMON STOCK SO WE COULDnot INTERFERE WITH MANAGEMENT PERKS. WHY ARE YOU SURPRISED THAT AFTER WE HAD COMPLIED AND THEY SHOWED RECORD PROFITS,GOT THEIR BONUSES AND LIMITED OUR POSSIBLE PAYBOOK DID YOU THINK THEY WOULD NOT REPEAT THE SUCCESSFUL MOVE AGAIN?????
11-02-2009 @ 9:55AM
Don said...
We are now feeding people in food centers and three of our neighbors have lost their homes. There are no decent jobs around because our manufacturing base is gone. I want those people on the top to start paying a price for what they did to us. It won't take the people who lose their jobs to finally start caring about what has happended to our country. I will see some of them in life for food and I won't feel sorry for them.
11-02-2009 @ 10:08AM
Uncledickierc said...
I agree. The 2.3 billion in todays market is small change. For example, the top five Yankee game players have combined contract salaries of l.4 billion dollars.
11-02-2009 @ 10:17AM
Emily said...
Check the article again, Smart Guy, the funds were received in December 2008. Which means....ding, ding, ding, the "I am not ashamed of any decision" George W. Bush handed that money out. Thank him, not the current administration.
11-02-2009 @ 10:41AM
paulz said...
The Republicans and Democrats are like Coke and Pepsi they have the market cornered while basically offering the same product, I'll vote Libertarian or Indy from here on out
11-02-2009 @ 10:57AM
Kate said...
They have a lot of Credit Card debt to collect. So there is assets.
11-02-2009 @ 11:03AM
Johnny said...
That means I wont pay them my car payment anymore...
11-02-2009 @ 11:22AM
James said...
Hey Bobby, if you want the truth, consider this: CONGRESS loans the money, not Bush or any executive branch. He tried to stop it, he even warned against economic failure, he just couldn't stop Franks and the rest of the crimminal congress. YOU need to get YOUR facts straight, you frick'n socialist.
11-02-2009 @ 11:31AM
John said...
"Check the article again, Smart Guy, the funds were received in December 2008. Which means....ding, ding, ding, the "I am not ashamed of any decision" George W. Bush handed that money out. Thank him, not the current administration."
Check your facts. The Democrats had control of the purse strings in December and for the last two years of the Bush administration and could have easily said no.
11-02-2009 @ 2:36PM
Mark said...
As We The People sit back, relax, collect our dwindling paychecks (if you even still have a job) we seem to not get it through our thick skulls that we no longer have a representive government "of the people, by the people, and for the people". Our government is of the corporation....PERIOD!! They government was complacent in the Subprime ponzi scheme, because the corporations ARE the government. This post is correct....we've been "Hoodwinked, Cable Towed, and are now Bonded to Bondsmen of Corporate Greed". Here's a short film I produced about the Subprime scandal and Thievery.
http://www.break.com/usercontent/2009/4/SubPrime-Slime-705089.html
11-01-2009 @ 6:51PM
kevin2110 said...
over 92% debt load. and consumers get nailed when they exceed 50% debt load. Wow what's wrong with tis picture?
Reply
11-02-2009 @ 10:43AM
mnm said...
Obama voted for Bush bailouts then pushed his own.