No Second Federal Bailout for CIT
Trading of beleaguered CIT Group Inc. (CIT) was halted on the New York Stock Exchange late Wednesday as the small and medium business lender negotiated with federal regulators on a potential bailout. But as the afternoon came to a close, CIT said it would not receive government assistance. “CIT…has been advised that there is no appreciable likelihood of additional government support being provided over the near term,” the firm said in a press release on its Web site Wednesday afternoon, adding it is now “evaluating alternatives.” CIT received $2.3bn from the $700bn federal bailout fund. With public criticism over the cost of corporate bailouts mounting, it appears regulators drew the line with CIT, and the lender now faces bankruptcy. Unlike larger institutions such as AIG and Bank of America, along with government-sponsored enterprises (GSE) Fannie Mae and Freddie Mac, who received billions in financial bailouts, CIT's collapse wasn’t considered big enough to trigger the catastrophic financial failure feared by the firms deemed “too big to fail.” However, as a lender to a reported 1m small and medium businesses, many believed not providing CIT with a bailout would make regulators look insensitive to the credit needs of its customers. Two of the nation's largest retailer trade groups called on Washington to extend a lifeline to CIT, saying its failure would be a massive blow to the already suffering retail sector. “CIT is a critical financial partner to many of our members, many of whom are small and medium sized businesses and make a substantial portion of the clothing and shoes worn by hard working American families,” said Kevin Burke, president of the Arlington, Va.-based American Apparel and Footwear Association in a release. “If we fail to act, everyone in the supply chain, including the designer, the manufacturer and the consumer, will suffer.” The National Retail Federation echoed the association’s demands. “If CIT were to fail, a chain reaction would be set off that could very well leave retailers with a shortage of merchandise during the crucial holiday season this fall,” federation president Tracy Mullin said in a press release and letter to Treasury Secretary Timothy Geithner. Not that CIT’s customers are jumping at their lines of credit anyway. According to media reports, the firm’s customers have already begun drawing down their lines of credit, to the tune of $750m, according to some estimates. But the halting the trade of CIT’s stock, which dipped to a $1.51 per-share-low Wednesday, and rebounded to $1.64 before trading was stopped, causing speculation that news of a bailout was soon to come. Write to Austin Kilgore.