With CIT (CIT) practically kaput, Breakingviews sees ominous parallels between it and GE (GE) Capital, also a huge player in vendor financing:
Oddly, CIT’s application to participate in the TLGP has been pending since January. Yet, CIT and GE Capital look like birds of a feather – arguably CIT looks like the prettier of the two ugly ducklings of finance. In the first quarter, CIT had shareholders’ equity equal to 10pc of its $76bn of assets – higher than GE Capital’s 9.6pc.
Moreover, CIT was less dependent than its far larger rival on short-term funding. GE Capital, which had $636bn of assets, qualified $176bn, or 28pc, of its assets as short term. CIT said $17.1bn of its funds were due to be repaid within 12 months – equal to 22.5pc of its total assets.
Remember, GE, though it’s never been “bailed out” technically, has issued a staggering $74 billion in TLGP debt, accounting for at least a quarter of the whole scheme
Of course as Breakingviews acknowledged, GE Capital has the industrial parent to lean on for earnings. CIT is pure finance. But we wonder whether this is backwards. Is GE Capital healthier because it has the industrial parent, or is it — more likely in our opinion — that GE Capital is too big to fail, since it’s got the economically crucial GE attached to it?
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