US Government will not give lender CIT 2nd bailout

Discussion in 'Wall St. News' started by Daal, Jul 15, 2009.

  1. Daal


  2. patchie


    So let me guess. The US Government did their due diligence, found that Government Sachs did not have a vested interest , and based on their findings determined that this public lending company was not too big to fail.
  3. Illum


    I'm sure the big banks would like to see cit die. That is a lot of loans they are missing out on.

    I'm convinced JPM will be the biggest winner of everything that has transpired not GS.
  4. There is an old saying :

    follow the money. If GS has full boat of CDS like discussed here :

    Jim Bianco has a fascinating post at The Big Picture, asking what is Goldman Sachs?

    His answer: one big credit portfolio.

    And he has some convincing charts, including this one, showing the commercial bank’s (née investment) stock price against the option-adjusted spread of an investment grade CDS index. Click to enlarge:


    Of course, correlation is not causation (we also note that since 2007 Goldman shares have been moving pretty much in tandem with the S&P 500) but Bianco does have some interesting supporting evidence, mined from the OCC’s Q1 2009 report on bank trading and derivatives activities. Now that Goldman’s changed into a commercial bank it’s required to report this kind of data, which in itself is a veritable treasure trove for anyone trying to understand it.

    For instance, in the report we learn that Goldman’s total credit exposure to capital was something like 1,000 per cent in Q1. That credit exposure, according to the report, is comprised mostly of CDS written on investment grade credit. In contrast, the next-biggest credit exposure was 475 per cent.

    Meanwhile, Goldman’s quarterly trading revenue accounted for 69 per cent of Q1 gross revenue — which must mean, according to Bianco, that the bank’s revenues primarily come from credit trading. Hence his conclusion:
    Since February 7, 2008 both Goldman’s stock and the bank index has been highly correlated to credit. Neither was highly correlated before this date. Since September 5, 2008 Goldman’s relationship to credit held, but the bank index’ relationship has begun to diverge. So, in answering the question, “do stock traders understand that Goldman is essentially a large credit protfolio”, [sic] these charts suggest the answer is “yes.”

    Indeed, there is a hint of the importance of credit in yesterday’s record Q2 results:

    Fixed Income, Currency and Commodoties (FICC) generated record quarterly net revenues of $6.80 billion, reflecting strength across most businesses, including record results in credit products.

    But we hesitate to generalise GS as purely a credit calamari; surely the bank’s secret sauce is not that simple?

  5. A default by CIT, the troubled US commercial lender, could trigger widespread losses for investors in the $600bn market for synthetic collateralised debt obligations. CIT is the second most widely referenced company in synthetic CDOs after Volkswagen, with almost two-thirds of those rated by Standard & Poor’s in Europe including it in their portfolios of credit default swaps. While many investors are already believed to have made writedowns against their CDO investments, analysts warn that a potential bankruptcy of CIT could have a psychological impact as a reminder of the potential systemic risk posed by structured credit products. “We are likely to be reminded of the high concentration of risks in the CDO market as defaults rise in the coming months,” said Michael Hampden-Turner at Citigroup in London.
  6. dirkd


    CIT is one of the worst run companies around. And as a crap company should be let to die so that others can learn from their mistakes and never run a company to the ground again. If i can not make good business decisions then i should not be running a company.