Monday July 13, 10:00 PM
Finance firm CIT seeks help as shares plunge
NEW YORK (AFP) - US business lender CIT Group (NYSE: CIT - news) acknowledged seeking help to shore up its financial position amid a plunge in its share price and analyst comments on a likely bankruptcy filing.
CIT, which operates in more than 50 countries and provides financial services to small and middle market businesses, said in a statement late Sunday it was "in active discussions with its principal regulators on a series of measures to improve the company's near-term liquidity position."
The company said the talks focus on its application to participate in the Federal Deposit Insurance Corp's Temporary Liquidity Guarantee Program, which offers low-cost funding to banking firms.
CIT said it is "also actively discussing liquidity solutions that do not involve access to the TLGP program."
Shares in CIT plunged 11.76 percent to 1.35 dollars Monday, down from a 52-week high of 13.00 dollars last September.
Standard & Poor's lowered CIT credit ratings to CCC+/C citing "increased near-term liquidity concerns."
"If CIT is ultimately unable to access government-guaranteed funding or to pursue alternative liquidity solutions, we believe that it might attempt to restructure its debt, perhaps in bankruptcy or through an exchange offer we would view as distressed," S&P said.
S&P said CIT has more than one billion dollars of unsecured notes maturing in the third and fourth quarters, which could result in payments "that could become increasingly difficult to make."
In December, CIT Group won approval to change its charter to a bank holding company and received 2.33 billion dollars in capital injection from the US Treasury as part of an emergency rescue package.
The company is a major player in industrial loans including aircraft financing, but last year sold its real estate lending and had taken other steps to deal with the unprecedented credit crunch.
Barry Ritholtz, analyst with FusionIQ, said CIT "may be already preparing to file" for bankruptcy protection.
Ritholtz said the US government will face a new dilemma on whether to bail out CIT, which could be one of the largest financial firms to fail since last year.
"Bailing out CIT will make a mockery of 'systemic risk' -- as if it wasn't already subjected to humiliating abuse as an economic concept," he said.
"Further, it introduces 'economic risk' as a basis for government intervention. And that means just about any company qualifies."
Lita Epstein, a financial columnist and author, wrote on the website DailyFinance that CIT "is trying to build support for an FDIC bailout" by indicating that its failure could impact hundreds of manufacturing firms and tens of thousands of retailers.
"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," she said.
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