John Paulson Playing Matchmaker For IndyMac And CIT

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Hedge fund manager John Paulson could be mulling the merger of banks CIT and IndyMac.

It’s one potential solution for the two troubled institutions which Mr. Paulson has substantial debt and equity stakes in.

New York Post: A marriage between the two banks would help IndyMac with its plans to diversify away from mortgages to commercial loans as CIT Group is one of the nation’s biggest lenders to small and midsize businesses. It could also help expand CIT’s deposits.

Some potholes stand in the path of any official proposal. Key among them is a $3 billion lifeline that CIT received in July, which carries a steep 10.5 per cent interest rate and is backed by as much as $30 billion in collateral.

At this point, CIT advisers, including Morgan Stanley, are focusing over the next few days on coordinating a retooling of billions in loans tied to the debt-laden lender. Paulson is said to be hoping the bondholders will first refinance the loan and free up the collateral before any deal is struck.

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