U.S. mulls temporary loan for CIT: source
Written on July 15, 2009
U.S. officials are considering giving CIT Group Inc a temporary loan as part of an aid package to help the lender avoid collapse, a source familiar with regulators’ thinking said on Tuesday.
The temporary loan is one option being considered to give CIT room to strengthen its balance sheet by raising additional capital through debt or equity, said the source who requested anonymity because the plans could change.
Other options include access to the U.S. Federal Reserve’s discount window and asset transfers, the source said. The source said there was no guarantee a plan would be reached.
CIT, a lender to thousands of small businesses, is pushing for government aid in its fight to survive. CIT clients tapped their credit lines, drawing some $750 million from the company in two days, the Wall Street Journal reported, citing unnamed sources.
The government’s plan calls for CIT to transfer assets to its bank, use some of them to pledge at the Federal Reserve’s discount window and refinance some debt, the paper reported on its website.
Chief Executive Jeffrey Peek’s future role was also unclear, it said.
CIT was not immediately available to comment.
Earlier on Tuesday, shares of the lender rebounded sharply as investors bet that the discussions would be fruitful, averting a disruption in credit for many companies.
CIT, which finances airlines, railways, retailers and manufacturers, is struggling to refinance debt as the two-year financial crisis has cut off its access to the corporate bond market cash advance.
Analysts said U.S. regulators must weigh how badly a CIT failure would damage confidence in financial markets and hurt credit availability for smaller companies against the costs of government backing for another ailing American company.
A CIT spokesman earlier confirmed that talks with the government continued on Tuesday, but gave no details.
“They’re major players when it comes to financing,” said Richard Lee, managing director of fixed income at independent broker dealer Wall Street Access. “But I don’t see the same type of impact if CIT goes under as when AIG was being batted around and GE Finance and some of the other stalwarts.”
The U.S. Treasury, the Federal Reserve and the Federal Deposit Insurance Corp have been exploring aid options for the lender, and there was no indication on Tuesday that the FDIC’s opposition to giving CIT access to a debt guarantee program was wavering.
According to people familiar with the matter, the FDIC has expressed concerns about heavy risks associated with CIT’s junk-status credit rating, the quality of its assets and its liquidity problems.
The Treasury Department and the Fed are working to find ways to give CIT breathing room, the source said.
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