Letting CIT Fail vs. Saving CIT

[muck]

First blurb sums it up nicely.

[dmarc117]

CIT going down will hurt retail big time.

[i_am_the_swammi]

I like the 2nd blurb a tad better...reminds me of a certain group of Huddlers here:

 

There seem to be two dominant reactions to a crisis – it has been demonstrated in many situations over time. There are those that

focus on dealing with the crisis and its solution, while others indulge in frantic searches for whom to blame for the problem. There is time

for both reactions, but timing is everything. In many professions, the inappropriate reaction will disqualify one from participating. A

firefighter is expected to stay focused on dealing with the fire as opposed to launching into a tirade of assigning blame. Let’s just say that

the average Congressperson will not be working a firehouse anytime soon. The energy of Congress has been spectacular when it comes to

accusatory hearings and nasty interchanges, but that enthusiasm seems to vanish when it comes to addressing the issue of a severely

weakened economy.

 

On topic, CIT is just the tip of an enormous iceberg. the treasury has realized that with the enormous amount of banks that aer going to be in trouble and/or fail, it won't be able to save everyone. CIT is the 1st of many. Only the strongest will survive...

[whomper]

CIT going down is just a devestating blow to my industry. We are not factored by them but a lot of our accounts are. It is going to be a crushing blow to an already ailing industry.

[Big John]

CIT - California Institute of Technology?

[dmarc117]

CIT - California Institute of Technology?

 

 

CIT Group Inc. operates as the holding company for CIT bank that provides commercial financing and leasing products, and management advisory services to the small and middle market companies worldwide. Its products principally include asset based loans; secured lines of credit; operating, capital, and leveraged leases; vendor finance programs; import and export financing; debtor-in-possession/turnaround financing; acquisition and expansion financing; letters of credit/trade acceptances structuring; and small business loans. The companys services primarily comprise financial risk management; asset management and servicing; merger and acquisition advisory services; debt restructuring; credit protection; accounts receivable collection; debt underwriting and syndication; capital markets; and insurance services for small businesses and middle market customers. It serves clients in various industries, including transportation, particularly aerospace and rail, manufacturing, wholesaling, retailing, healthcare, communications, media and entertainment, and various service-related industries. The company was founded in 1908 and is headquartered in New York, New York.

[Puddy]

I've been following this very closely for the last week and The Chamber has it wrong on what has CIT in trouble. Thier factoring division is the one area of the company right now that is profitable. It is truly their shining star right now. Their problem is more on the bank side. They are extremely important to small and midsize businesses as they extended lines of credit to help these very important players in our economy operate. They have been the number one lender to small businesses for a while. Many of these businesses wouldn't have received financing if not for CIT as other banks wouldn't extend them credit for one reason or another. CIT's business model is inherently riskier due to that. In addition, CIT decided to get into the subprime mortage and student loan business a while ago. That proved devastating to them as well.

 

CIT already received a bailout package to the tune of $2.3 billion or TARP money in December. They had to apply to become a bank in order to get those funds. Many analysts believe a second round of 'rescue' money from the government would not cure the real problem....a bad business model.

 

It has been particularly interesting to watch the talks with the government over the past week. The arguments were strong from the lobbyists representing retail and manufacturing and with good reason. If CIT fails, it may very well put some of their banking customers out of business increasing unemployment at a time when our economy can ill afford to do so. I actually felt that the government was going to vote for a bailout for the wrong reasons...votes in the mid-term elections. Who wants to be the one responsible for putting small businesses and therefore jobs at risk? Voters may not like that idea. It surprised me when the talks for a bailout fell apart Wednesday night because of that.

 

It's a no win situation for the government to a degree. There are millions of people who complain when bailouts happen for any firm (and I understand the reasons why). But there will be millions who complain when others don't get bailed out. Ideally, there would be no need for a bailout for anyone....free market and all. However, the ramifications to the overall economy of letting some of the big boys go under would have been hugh. It's picking those firms that won't have the same negative impact on the financial markets and letting them survive or fail on their own that is tricky.

Edited July 17, 2009 by Puddy

[Puddy]

Here's an article from the NYPost that talks more about the factoring arm of CIT. If they sell off that portion of their business (which is likely) the disruption to the customers who sell their receivables to them may be minimal. It's the customers who actually do their banking with CIT that will be more at risk.

 

 

 

 

THREADS THREAT

 

DIMON SEEN AS SUITOR FOR APPAREL-TIED CIT UNIT

 

RELATED STORIES

 

By JAMES COVERT

 

 

 

more topics

 

 

 

Last updated: 1:07 am

July 17, 2009

Posted: 1:00 am

July 17, 2009

 

With their biggest lender facing bankruptcy, New York's cash-strapped fashion labels are praying for an unlikely savior: Jamie Dimon.

 

Seventh Avenue's fashionistas and financiers fear the worst as commercial-lending giant CIT -- snubbed by Uncle Sam in its bid for a second bailout -- scrambled yesterday to avoid a Chapter 11 filing.

 

That's because CIT's so-called "factoring" unit finances as much as 70 percent of the rag trade nationwide.

 

Industry chatter is swirling that CIT is in talks to sell its factoring unit to Dimon-run JPMorgan Chase at a time when worries are mounting that disrupted shipments could plunge apparel firms into insolvency, which would endanger holiday prospects for retailers from Macy's to Saks Fifth Avenue.

 

Officials at CIT and JPMorgan declined to comment. And industry experts speculate that an overseas bank, or even Wells Fargo -- another key player in retail finance -- might likewise be interested in acquiring the unit.

 

But sources said CIT's highly regarded factoring division appears to be an especially good fit for Dimon's JPMorgan, which already has a robust bank-lending and asset-based lending practice that caters to the apparel industry.

 

The factoring unit -- which finances upwards of $50 billion in wholesale inventory annually -- netted $73 million last year. The tightly run outfit accounted for about 10 percent of profits at the height of CIT's ill-fated push into other risky businesses like corporate and consumer lending, said David Hendler, an analyst at CreditSights.

 

Now, though, the factoring business likely accounts for the lion's share of the firm's income, Hendler said.

 

"Servicing the schmatta trade could be a way of helping customers who have other business relationships with JPMorgan," he said.

 

Fashion financiers yesterday parsed Dimon's words as he responded to questions about CIT during JPMorgan's earnings call.

 

"I wouldn't think that would be a major thing," Dimon said in response to worries about CIT's clientele, including the apparel trade. "And remember, even companies in bankruptcy continue to service accounts and things like that."

 

Dimon has a habit of cherry-picking the best assets from distressed competitors, as he did last year with now-defunct firms Bear Stearns and Washington Mutual.

 

But if he opts to scoop up CIT's crown jewel, he needs to do it quickly and seamlessly to avoid a holiday disaster, said Gary Wassner of Hilldun, a factoring firm that specializes in luxury labels.

 

"The longer they wait, the more good faith they lose with their customers," Wassner said.

 

Indeed, CIT's borrowers have drawn down more than $750 million in credit lines since bankruptcy worries began to spread.

 

While that's a costly state of affairs, "everybody's doing it," said a top executive at one Seventh Avenue apparel manufacturer who asked not to be named. "What are you going to do otherwise -- become a secured creditor in a bankruptcy case?" he said. james.covert@nypost.com

[Puddy]

I expected CIT to file for bankruptcy today but they haven't done so yet. They are feverishly looking for financing on their own to avoid filing. Some people are betting that they find it. It doesn't mean they'll survive long-term but would buy them time to get things fixed if they can.

[dmarc117]

CIT Group in talks with JPMorgan Chase, Goldman Sachs for short-term financing, according to source close to company - Reuters (0.61 +0.20) -Update

 

http://www.reuters.com/article/ousiv/idUSN1444850020090717

 

:edit add link

Edited July 17, 2009 by dmarc117

[dmarc117]

http://www.bloomberg.com/apps/news?pid=206...id=a26GM_h4KfNA

[MikesVikes]

CIT going down is just a devestating blow to my industry. We are not factored by them but a lot of our accounts are. It is going to be a crushing blow to an already ailing industry.

 

They get a large chunk of our cash.