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Will CIT Wipe Out Goldman’s Earnings?
Posted By Barry Ritholtz On July 16, 2009 @ 7:03 am In Bailouts,Earnings | Comments Disabled
Here’s something else for the conspiracy theorists out there (I think its merely a fortuitous coincidence, but I never like to stand in the way of the tinfoil crowd)
One year ago, Goldman Sachs gave CIT a $3 billion line of credit . I heard no mention of this in the Goldman blowout earnings.
Now 2 days later, CIT is on the verge of bankruptcy.
A few questions come to mind:
-How much of GS’ $3B has CIT used?
-How collateralized is this line?
-Will the recovery be closer to 90 cents or 25 cent on the dollar?
-Did Goldman know that CIT was about to do the big faceplant?
The really interesting question is what would Goldman’s earnings have looked like if CIT filed last week rather than next week — would it have wiped out the entire quarter’s blowout numbers?
UPDATE: July 16, 2009 7:22am
Goldman announced it hedged its credit line to CIT 
Interesting timeline after the jump . . .
Nice overview of CIT’s recent history via Reuters”
July 18, 2007 – CIT said it was exiting the mortgage business, including sub-prime home lending, and posted a surprise second-quarter loss. Its shares slide more than 10 percent to $49.17.Sept 19, 2007 – Says it plans to sell up to $4.2 billion of mortgage-backed securities to Freddie Mac and borrows $2 billion from Morgan Stanley against the expected proceeds as it seeks to shore up financing.
March 20, 2008 – Draws down $7.3 billion of bank lines to help fund daily operations, and its shares plunge 17.3 percent to $9.63. A few days earlier, its long- and short-term credit ratings were cut.
April 17, 2008 – CIT slashes its dividend by 60 percent as it reports another quarterly loss and further asset sales.
June 9, 2008 – It secures $3 billion of financing from Goldman Sachs.
July 17, 2008 – CIT posts a $2.1 billion quarterly loss, but says it can meet its cash needs through the end of 2009.
Sept 29, 2008 – CIT renews about $6 billion in bank financing. Eleven days earlier Wells Fargo Bank agreed on a $500 million credit facility for CIT.
Nov 13, 2008 – CIT applies to become a bank holding company and says it will seek capital under the U.S. government’s program bailout program, sending its shares up more than 20 percent to $4.24.
Dec 23, 2008 – The company gets preliminary approval for $2.33 billion under the government’s $700 billion financial bailout program.
March 31, 2009 – CIT Group says it is unable to issue government-backed debt as regulators have yet to approve its applications.
June 12, 2009 – Standard & Poor’s cuts its rating on CIT Group into junk territory, saying the lender’s conversion into a bank holding company did not benefit its liquidity as much as expected.
July 12, 2009 – CIT executives meet government officials and try to work out a financing plan to convince customers and investors that it can work its way out of a deepening liquidity crunch.
July 15, 2009 – Talks with the government fall apart, leading to increasing expectations of a bankruptcy filing.
Goldman Shows CIT The Money 
TIMELINE: CIT’s troubles deepen over past two years 
Reuters, Jul 16, 2009 4:03am
Article printed from The Big Picture: http://www.ritholtz.com/blog
URL to article: http://www.ritholtz.com/blog/2009/07/will-cit-wipe-out-goldmans-earnings/
URLs in this post:
 $3 billion line of credit: http://www.forbes.com/2008/06/09/cit-goldman-closer-markets-equity-cx_mlm_0609markets34.html
 hedged its credit line to CIT: http://www.bloomberg.com/apps/news?pid=20601103&sid=a9IV.uJ0d8Zk
 TIMELINE: CIT’s troubles deepen over past two years: http://www.reuters.com/article/newsOne/idUSTRE56F05S20090716
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