CIT on the rocks - FDIC Said to be Unwilling to Back CIT Debt on Risk

"Without access to TLGP, CIT may default as soon as April, when a $2.1 billion credit line matures, according to Fitch Ratings."

FDIC Said to be Unwilling to Back CIT Debt on Risk (Update1)
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By Caroline Salas and Pierre Paulden

July 9 (Bloomberg) -- The Federal Deposit Insurance Corp. is unwilling to give CIT Group Inc. access to its Temporary Liquidity Guarantee Program because the commercial lender’s credit quality is deteriorating, according to people familiar with the regulator’s thinking.

The FDIC, which has backed $274 billion in bond sales under the TLGP since Nov. 25, is concerned that guaranteeing CIT debt would put taxpayer money at risk, said the people, who declined to be identified because the application process is private.

The federal agency is continuing talks with CIT about how the lender can strengthen its financial position to get approval, such as by raising capital, said one of the people. CIT’s measures to improve its credit quality, such as by transferring assets to its bank, have been insufficient, the person said.

CIT, the century-old lender to 950,000 businesses, became a bank in December to qualify for a government bailout and received $2.33 billion in funds from the U.S. Treasury. The New York-based lender has reported more than $3 billion of losses in the last eight quarters, faces $10 billion of maturing debt through 2010 and hasn’t had access to the corporate bond market in more than a year, according to data compiled by Bloomberg.

Without access to TLGP, CIT may default as soon as April, when a $2.1 billion credit line matures, according to Fitch Ratings.

Application ‘Remains Outstanding’

CIT’s “application for participation in TLGP remains outstanding, and we continue to be in active dialogue with the applicable federal regulators,” Curt Ritter, a CIT spokesman, said. He declined to comment on the FDIC’s reasons for delaying CIT’s application.

Andrew Gray, spokesman for the FDIC in Washington, declined to comment on CIT’s pending application.

CIT stock plunged 59 percent this year, underperforming the Russell 1000 Financial Services Index by 50 percentage points. CIT shares, which closed at $1.86 on the New York Stock Exchange, fell 34 cents, or 18 percent, as of 6:27 p.m. in after-hours trading.

The TLGP program opened a channel of funding for financial institutions unable to borrow in U.S. markets after the September collapse of Lehman Brothers Holdings Inc. By paying the FDIC a fee to back their bonds, banks are able to sell debt with top credit ratings. The TLGP expires Oct. 31. Issuers must have applied by June 30.

To contact the reporters on this story: Caroline Salas in New York at csalas1@bloomberg.net; Pierre Paulden in New York at ppaulden@bloomberg.net

Last Updated: July 9, 2009 19:00 EDT

 

Looks like you beat ByLowSellHi to this one

 

This part is laughable. They didn't seem to concerned about that when they were bailing out Federal Reserve Member Banks. Since CIT isn't a member bank they are getting the middle finger.

 

Hmmm, wasn't it a Citi analyst that came out today and said AIG common may be worthless? Back to ya buddy!

 

$80B in assets, they didnt make the $100b cut. Doubt they will be allowed to fail tough, FDIC would need a bailout themselves if they had to cover depositors

 

AIG isn't a member bank. The Fed backed AIG because AIG backed the member banks.

 

The Fed backed AIG because AIG would have taken down Goldman Sachs.

 

Right. GS is a member bank. If GS failed the Fed failed.

 

CIT Hires Bankruptcy Advisers After Rejection by FDIC, WSJ Says
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By Jonathan Burgos and Jim McDonald

July 11 (Bloomberg) -- CIT Group Inc. hired the law firm of Skadden, Arps, Slate, Meagher & Flom LLP as an adviser as it prepares for a possible bankruptcy filing after failing to win access to government guarantees for its borrowing, the Wall Street Journal reported, citing people familiar with the matter.

The hiring of the prominent bankruptcy law firm doesn’t mean a company will actually make a bankruptcy filing, the report said. “The government has not said absolutely no to anything,” the newspaper cited a person familiar with the matter as saying.

The Federal Deposit Insurance Corp., run by Chairman Sheila Bair, is in discussions with CIT about how the lender can strengthen its financial position to get approval, including by raising capital, a person familiar with the matter told Bloomberg News yesterday. CIT’s measures to improve its credit quality, such as transferring assets to its bank, have been insufficient, the person said.

“CIT continues to be in active dialogue with the government,” the company said yesterday in a statement distributed by Business Wire. “There can be no assurance that CIT’s application will be approved by the FDIC, nor as to the timing or terms of any such determination.”

The century-old New York-based lender to 950,000 businesses became a bank in December to qualify for a government bailout and received $2.33 billion in funds from the U.S. Treasury. CIT, which has reported more than $3 billion of losses in the last eight quarters, faces $10 billion of maturing debt through 2010 and hasn’t had access to the corporate bond market in more than a year, according to data compiled by Bloomberg.

CIT’s $500 million of floating-rate notes due in November 2010 fell 3.5 cents on the dollar to 70 cents, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The stock fell 33 cents, or 17.7 percent, to $1.53 in New York Stock Exchange composite trading, after earlier falling as low as $1.13, the lowest in seven years.

 

"The hiring of the prominent bankruptcy law firm doesn’t mean a company will actually make a bankruptcy filing, the report said."

When has it not resulted in BK. They always say this and I have yet to see a case where the company did not file.