CIT Bankruptcy Likely
As noted earlier, (Is CIT Bankrupt Yet?) it is likely that CIT is going to have to go reorg.
It does not appear probable they will be getting a bailout.
The obvious reason why not is that CIT does not present a “Systemic risk” — but the less obvious answer may surprise you: They simply haven’t been making many loans.
The company tried to make the argument they were too important to the economy in terms of funding small businesses. The lifeblood of small entrepreneur, thre key to economic recovery.
Only not so much. You see, during the credit crisis, CIT has more or less curtailed their lending. That’s right, very little origination over the past few quarters.
Hence, why they are going buh bye.
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See also:
CIT Says It Won’t Get More U.S. Aid
MICHAEL J. de la MERCED and ERIC DASH
NYT, July 15, 2009
http://www.nytimes.com/2009/07/16/business/16cit.html
CIT Calls Bailout Unlikely, Fueling Speculation of Bankruptcy
Linda Shen
Bloomberg, July 16, 2009
http://www.bloomberg.com/apps/news?pid=20601087&sid=a_YL57lGp8ds
CIT Scrambles for Rescue Financing
DAMIAN PALETTA, JEFFREY MCCRACKEN and SERENA NG
WSJ, JULY 16, 2009
http://online.wsj.com/article/SB124768727832747201.html
July 15th, 2009 at 10:45 pm
http://www.boingboing.net/2009/07/14/wells-fargo-sues-its.html
CIT should sue itself for alienation of affection and negligence and for failure to thrive. Wells Fargo is so far ahead of the curve it makes me want to buy a stagecoach and a team of horses. As an aside, Wells Fargo seems to be acting in concrete ways to solve its problems. Maybe they should bill a few customers a couple extra quadrillion dollars, you know, see what happens, some people don’t go over their statements with much focus. All you need is one guy not paying attention and goodbye California HELOC problem.
July 15th, 2009 at 10:47 pm
John “Bluto” Blutarsky: “Seven years of college down the drain.”
July 15th, 2009 at 10:52 pm
how do you break up TBTF fairly?
about time to think about these coming behemoths …
beyond that the condensed business functionality and less people needed to sweep the smaller floor spaces
.. cue up the EATR after the EDAR has created ugly town syndrome and property tax revenues are down
July 15th, 2009 at 10:58 pm
heartbreaking- and sad- and tragic- in a I don’t give a shit- should have happened to many other banks kind of way
July 15th, 2009 at 11:04 pm
Nice to see that Obama has at least a little bit of spine.
July 15th, 2009 at 11:16 pm
as long as this isn’t the fu that leh was… still, i believe there will be an 11th hour white knight.. too much drama makes me numb.
July 15th, 2009 at 11:21 pm
The term Too Big To Fail (TBTF) has been misapplied.
T0o Connected To Fail (TCTF) is more appropriate.
July 15th, 2009 at 11:30 pm
kinda hard for me to believe that the way Lehman was handled was simply an incompetent accident. After the Bear Stearns fiasco, I would expect them to have gotten their collective act together.
These things are played out as kabuki theater — there should be no surprises inside the bubble.
July 15th, 2009 at 11:33 pm
Dollars to donuts they made sure Goldman was secure before the decision to cease talks.
Tavakoli on Goldman today. She’s one of my favs for sure.
http://watch.bnn.ca/#clip193973
July 15th, 2009 at 11:39 pm
“Nice to see that Obama has at least a little bit of spine.”
He doesn’t. Neither does Geithner. Sheila Bair does (though about 8 months too late — thanks for nothing, Sheila).
July 15th, 2009 at 11:51 pm
CIT is simply one of the smaller “cavaliers of credit.” If you bailed them out, they would simply hoard the cash to pay off all the bad debts they have coming due. There was a reason they weren’t making any loans….
The rest of the big boys are hoarding as well….the gov’t is making a calculated political decision here….people are getting pissed….
July 16th, 2009 at 12:03 am
stuart: love the Tavakoli clip….and I love that BNN….those people actually bring people on and let them speak for an entire 10 minutes…it’s amazing.
July 16th, 2009 at 12:04 am
stuart-
great clip- thx- GS is America- the lazy easy way to riches- a narcissistic organization that only thinks of itself and how it will benefit- paving its way to riches with USG sponsorship- using its connections to game the market-
man- I’m proud to be a American
July 16th, 2009 at 12:38 am
@Andy T
“CIT is simply one of the smaller cavaliers of credit.”
Do you think this will scare the bigger ones enough to start lending? Will this be enough to avoid deflation?
@Stuart
Great video!
July 16th, 2009 at 12:50 am
Pete from CA:
What’s your problem? The bigger ones haven’t started lending? Haven’t you seen the markets this week? The recession is over!! All is well!!
July 16th, 2009 at 1:07 am
Pete
They’re not lending because their balance sheets are chock full of crappy loans that they have to cover eventually and therefore are hoarding cash as loss reserves. It’s just that simple. I don’t understand what you think is going on.
What do you mean by: “Will this be enough to avoid deflation?”
July 16th, 2009 at 1:40 am
What happened to the 2.3 billion dollars the FED gave them in 2008?….
and what happens to that money if it goes belly up?…does Goldman get the 3 billion it separately loaned CIT in 2008 before all other creditors in a Bankruptcy?
and with this 5 billion dollar infusion what did CIT do? Pay Bonuses?
July 16th, 2009 at 1:40 am
and now we discover that the ones that are too big too fail [BAC, C] have been operating under “double secret probation”
http://www.thestreet.com/story/10544380/1/bofa-citi-operating-under-mous-report.html
July 16th, 2009 at 2:11 am
Did Mrs. BO sing?
http://www.ft.com/cms/s/0/a44b5690-7182-11de-a821-00144feabdc0.html
Citi close to secret deal with regulator
July 16th, 2009 at 3:05 am
Andy wrote “The rest of the big boys are hoarding as well….the gov’t is making a calculated political decision here….people are getting pissed….”
I read this as “the gov’t wants to scare the other banks into lending to avoid deflation” and my question was whether anyone thought this would work. If I misinterpreted what Andy wrote then never mind.
July 16th, 2009 at 5:33 am
All those voices complaining about bailouts, now they don’t bailout, and they’re still complaining.
Package them up with ‘Business Week’ Someone will buy them for two bucks.
July 16th, 2009 at 8:18 am
Isn’t CIT the 20th largest U.S. bank? Didn’t CIT pass the stress test? NO Bailouts!
July 16th, 2009 at 8:31 am
@florida bear
Why do you think they “stress tested” 19?
July 16th, 2009 at 9:13 am
Pete from CA: sorry. Went to bed. To respond: No, I don’t think that will scare anyone into lending. Banks are like people: “fight or flight” instincts take over during duress. And they’re definitely in the “flight” mode. Self-preservation is their game right now.
July 16th, 2009 at 4:42 pm
“That’s right, very little origination over the past few quarters.”
Couldn’t you say the same thing about all the banks over the past few quarters? That would imply that they have been acting like their bigger brethren. Besides, I agree with Karen; “i believe there will be an 11th hour white knight”.
July 17th, 2009 at 6:59 am
I propose a far more nefarious reason by CIT will be going bye-bye in an era where taxpayer funded bailouts are the norm, not the exception.
See link to NYT article from 7/16/09 pasted below (and linked by this blog just yesterday, in fact. Excerpt from article “suggestive” of my assertion in quotes at bottom of this post.
http://www.nytimes.com/2009/07/17/business/global/17bank.html?_r=1
The government and Fed are indeed taking our nation down a very dangerous path. Financial power concentrated in fewer hands. Oligarchy anyone. It is not mere coincidence that JPM was backstopped by the Fed (read US taxpayers) guaranteeing $30B in losses; as I’m certain most readers here are aware, Jamie Dimon serves on the Board of Directors of the Federal Reserve Bank of New York (yep, the one that Timmy Geithner used to head).
Now, I’ve seen all kinds of speculation about why the government (particularly Secretary Geithner) will allow CIT Group to fail and there are many good reasons. Here’s one that I’ve yet to see discussed anywhere. Allowing them to fail strenghthens one of the “winners” picked by the government: JP Morgan. Again, read pasted excerpt from NYT article below (link to article pasted at top of this post).
“Michael J. Cavanagh, the chief financial officer at JPMorgan, said its profit and fees from this business were “a record for us in a quarter and a record for anybody at any firm in any quarter.” The bank, he added, was “so very proud of those results.”
It has also profited from the demise of weaker banks to enlarge its market share in mortgages and retail banking. On Tuesday, as the CIT Group, a lender to many small businesses, negotiated with the government to avoid collapse, JPMorgan signaled that it was watching.
“It would be an opportunity for us in these states if CIT was unable to continue lending to borrowers,” Tom Kelly, a spokesman at Chase, was quoted by Dow Jones Newswires as saying.”
July 17th, 2009 at 7:11 am
Points of clarification:
-My assertion is not in quotes.
-Excerpt from article is at bottom of my original post in quotes.
Apologies for poor grammar/lack of clarity in my original post. I will now put my foil hat back on.