CIT Nears Bankruptcy Filing - WSJ.com

CIT has been a basket case ever since the collapse of the financials. They couldn't raise the capital they needed to stay in business and handle all the write-offs.

Carl Icahn, who owns 2 billion of CIT bonds/debt, apparently has approved the move which is rumored to include a 70 cents on the dollar pay-off to debt holders.

NOTE: CIT should not be confused with Citigroup. CIT was the largest commercial lender in the US before it's troubles, it's not a FDIC bank.

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Giving money and power to government is like giving whiskey and car keys to teenage boys. ---P. J. O'Rourke

To be honest CIT should go down especially seeing as how, like many others, CIT just borrowed way too much in the debt market right before the credit crunch. I do not think enough people realize the dangers of how CIT (and others) financed itself before turing to the ole government bailout for idiots plan. CIT got something north of $2.3 Billion out of the TARP (around Dec 2008 I think) for preferred stock. Investors knew then there was little possibility of paying this back and the common stock just went to shit.

In case anyone is curious the answer is yes, under Jeffery Peek as COO to then CEO, CIT did expand greatly into the subprime and sudent loans market only adding to the massive debt this company collected and handled over the years. This forced way too many bonds issued to support itself. This is the same failed model for Fannie Mae, Freddie Mac, Lehman Brothers, etc. Adding to this mess, it was only after the FDIC refused to guarantee CIT debt issuances in July they turned to other funding (after our TARP $'s are already in.)

While Bond holders may very well get the 70% of their investment, what will also happen is the tax payer will get little to nothing. Usually, unless we are talking about the rediculous auto industry prepackaged bankruptcy set ups, it should work out where Bond holders are first, preferred stock holders (which includes the US government now - TARP) are next, nothing for common. That assuming something is left over which I do not think there will be at this point. Bond holders get a new debt structure worth 70% of the original (negotiated in advance) and creditors will end up owning the company that comes out of backruptcy. With whatever that looks like. Note that some of the credit (should say new owners) was collected in the past few weeks. Anyway, assuming for a moment there is anything left after Bond holder new debt structure and company ownership reorg, the TARP will get very little.

In the end you get another 100+ year old company down the toilet due to horrible financial decision making by management. The bankruptcy size will be in the top 5 in corporate history. Made only worse by our government (fuck the tax payors) to the tune of a $2.3 billion investment with little hope of return just so CIT can survive another 10 or so months.

Think about this, half the time they were living on the TARP they were hitting the bond market only to end worse off. They needed more debt restructure and additional funding all along the way turning to investors just to survive a prepackaged bankruptcy. If this is not a good enough argument as to why government bailouts do not work, I do not know what is. These guys needed to fail, and it should have happened back in December.

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- Frustrated Independent

Their intent as I read it is they intend to go in/out of bankruptcy as quick as possible.
Investors take a bath, creditors take a partial bath - they come out ready to go.

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The government cannot give without first taking.

You make some good points here as part of a nice overview.

However - what will be the impact of CITI failing? We don't know.

There wil be many clients who will have difficulty moving to other lenders because the healthy banks that are doing relatively well will have difficulty dealing with the demand.

The psychological impact will certainly not be as severe as it would have been ad the bank 'gone under' last winter. But it will still have a significant effect - and we know what that intangible psychology means for both investors and business people who are making decisions.

As you say, the foolish and finally disgraceful judgments made by the management over many years are now destroying a venerable bank that was once a byword for stability and security.

Citi may fail, but this thread is about CIT.

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Giving money and power to government is like giving whiskey and car keys to teenage boys. ---P. J. O'Rourke

And making things worse, any TARP money we get back most likely won't go back to the taxpayers anyway.

The collapse of a giant has terrible consequences. I agree with you, though, that we should let it happen; we could use to consider that the collapse also opens the door to more constructive restructuring than bailout money could ever provide. If only bankruptcy weren't so much of a joke anymore.

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The Patient Sufferance - Politics for People Tired of Politics