While Treasury Secretary Timothy Geithner left open the potential rescue for CIT Group (CIT) — a commercial financing and leasing products lending entity with and management advisory services focused on small and middle market companies worldwide — clearly time would otherwise be running out for this company. Its shares have been under extreme pressure as investors doubt whether the company can pay off its mounting debts without filing for bankruptcy.
 
If CIT gets bailed out, the funds would most likely be supplied by the Federal Deposit Insurance Corp.’s Temporary Liquidity Guarantee Program. This program was used by General Electric (GE) and others in the past, and would aid in easing investor fears as CIT would be permitted to issue short-term debt guaranteed by the FDIC.

An alternative would be for CIT to issue higher yielding debt without government backing, which might attract investors with a potential for higher yield reward for the risk. However, the costs of such a plan might ultimately be prohibitive and may only postpone the inevitable. CIT has approximately $2.7 billion of debt coming due in 2009, with $8.0 billion coming due in 2010.


As the failure of CIT is not perceived to pose a systemic risk to financial markets, there remains a high potential that this company would not be bailed out. This would stem from CIT already having had received $2.3 billion from the Troubled Asset Relief Program (TARP). If CIT were to fail, Wells Fargo (WFC) and GE Capital would definitely be in the wings to pick the carcass.
 
While there is a basis for not being interested in helping out another large financial institution, the potential passing of CIT (one of the oldest and largest lenders to small and mid-sized businesses) could send the wrong message to the financials of “Main Street America,” and result in political risk — considering most financial institutions in the country remain unfriendly to the prospect of lending.
Read the full analyst report on “CIT”
Read the full analyst report on “GE”
Read the full analyst report on “WFC”
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