CIT has been teetering on the edge of the abyss all weekend. Government officials had said the lender did not pose a systemic risk to the financial system, which seemed to leave open the possibility that it might be allowed to fail.
In both the Treasury Department and the Federal Reserve, officials have been debating whether CIT could provide an opportunity for the Obama administration to indicate that there are limits to have far it will go to resuce financial institutions. CIT got $2.3 billion in December from the TARP.
Frankly, however, it’s hard to imagine that the Beltway bailout boys won’t come through for CIT.
Here’s the AP’s latest, from Ieva M. Augstums:
Shares of diversified lender CIT Group Inc. plunged Monday morning as uncertainty mounts over whether it can get federal backing for its bonds.
The company’s shares fell nearly 18 per cent in pre-market trading after dropping 18 per cent in heavy trading Friday amid uncertainty over federal aid.
CIT said it is still in talks with regulators on ways to improve its near-term liquidity as recent losses may jeopardize its compliance with capital requirements.
The company, which in April posted a wider-than-expected first-quarter loss, said late Sunday that it will talk with regulators about the possibility of participating in the Federal Deposit Insurance Corp.’s Temporary Liquidity Guarantee Program.
The program would let the New York-based financier to small and mid-sized businesses issue government-backed bonds to raise capital at a lower cost. As of June 8, the program has backed $335.4 billion of debt.
CIT already received $2.3 billion in government bailout funds in December, as part of the $700 billion rescue fund created by Congress last October. It had to convert to a bank holding company to access the money.
If CIT is unable to receive access to the TLGP program it would have to find alternative funding that would likely need to be secured by its assets.
The lender faces maturing debt of $7.4 billion in the first quarter of 2010, plus other obligations. CIT could issue debt without government backing to help it in the near term, but it has to carry a high yield to attract investors.
CIT has said it is also considering the possible transfer of assets into CIT Bank as well as the transfer of its vendor finance and trade finance businesses into the bank.
The company, which has faced a series of downgrades by ratings agencies recently, said there is no guarantee that its discussions with regulators will result in any action.
While not as well known as the big commercial banks, government officials have said CIT is not a systemic risk to the financial system, as other lenders could step in to provide loans and services to CIT’s client base.
CIT shares dropped 27 cents, or 17.7 per cent, to $1.26 in premarket trading Monday. They have traded as low as $1.13 over the past year and as high as $13.
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