Another new round of crisis just started.
http://news.yahoo.com/s/afp/2009110...ngcompanycitbankruptcyleadwrap_20091102105443
CIT goes bankrupt in new blow to recovery hopes
AFP
CIT goes bankrupt in new blow to recovery hopes AFP/Getty Images/File – CIT Group, a key lender to small US firms, has declared itself bankrupt becoming the fifth largest failure …
by Michael Mathes Michael Mathes – Mon Nov 2, 5:49 am ET
WASHINGTON (AFP) – CIT Group, a key lender to small US firms, declared itself bankrupt becoming the fifth largest failure in American history and dealing a new blow to market nerves.
CIT said late on Sunday it has agreed a restructuring plan with creditors that will reduce its debt by about 10 billion dollars.
But amid doubts about the prospects for the bank and the US economic recovery, Japanese shares fell more than two percent on Monday.
The bankrupt group received an emergency loan of 4.5 billion dollars on October 28 after struggling for months through the fallout of the global financial crisis.
It was also rescued in July after Washington rejected a bailout plea and had received 2.3 billion dollars of taxpayers money in December last year which will now probably be lost.
CIT, like many US banks, hit major problems because of the home mortgage meltdown which briefly crippled the global economy and is still causing major pain. The bankruptcy heightened international doubts about the strength of the US recovery.
Japanese stocks ended 2.31 percent lower on Monday because of fresh doubts about the sustainability of a US rebound, compounded by CIT's bankruptcy.
Manoj Ladwa, a senior trader at ETX Capital in London, said: "CIT?s bankruptcy is a stark reminder that a full-blown economic recovery is still a long way off. The commercial lending market just got tougher as small businesses will struggle to source funds."
CIT's board expressed confidence that the firm, which provides financing to nearly one million small and middle market companies and operates in 50 countries, could weather the bankruptcy storm.
"With the overwhelming support of its debt-holders, the board of directors voted to proceed with the prepackaged plan of reorganization for CIT Group Inc and a subsidiary that will restructure the company's debt and streamline its capital structure," the company said in a statement after a board meeting.
CIT said it aims to emerge from court protection by the end of the year.
"Under the plan, CIT expects to reduce total debt by approximately 10 billion dollars, significantly reduce its liquidity needs over the next three years, enhance its capital ratios and accelerate its return to profitability."
CIT Group chairman and chief executive Jeffrey Peek, who has announced he is stepping down at the end of the year, said the plan would allow subsidiaries, including CIT Bank in Utah state, to continue operations.
But not all experts shared the company's confidence.
"There's no guarantee," Scott Peltz, managing director of corporate restructuring at RSM McGladrey told The Washington Post about CIT's prospects, highlighting the need to get an investment grade rating.
In the voluntary Chapter 11 filing with the US Bankruptcy Court in New York, CIT reported total assets of 71 billion dollars and liabilities of nearly 65 billion dollars, making the bankruptcy the biggest behind Lehman Brothers, Washington Mutual, WorldCom and General Motors.
Founded in 1908, CIT became the largest lender to the US retail sector, although it also operates in aeronautics, defense and rail and has lent money to technology giants Dell, Microsoft and Toshiba.
Most worries now are focused on CIT's smaller customers, many of whom have fallen behind on repayments during the recession.
"This bankruptcy shows us the clearly the road to strong robust economic recovery is like the road to hell. Paved with good intentions. The ramifications will not be immediate but you can bet your last dime that the retailers and small businesses locked into CIT are going to find it a nightmare for financing," said Manus Cranny, analyst for MF Global Spreads in London.
About 85 percent of the holders of CIT's reported 30 billion dollars in bond debt participated in voting, with 90 percent supporting the bankruptcy plan, the company said.
Public money injected into CIT Group over the past year is expected to be wiped out in the restructuring.
The US government has injected tens of billions of dollars into the banking system because of the crisis. But when the government rejected a rescue in July, a US administration official said the decrease in the level of loans granted by CIT Group indicated that the firm was not too big to fail.
http://news.yahoo.com/s/afp/2009110...ngcompanycitbankruptcyleadwrap_20091102105443
CIT goes bankrupt in new blow to recovery hopes
AFP
CIT goes bankrupt in new blow to recovery hopes AFP/Getty Images/File – CIT Group, a key lender to small US firms, has declared itself bankrupt becoming the fifth largest failure …
by Michael Mathes Michael Mathes – Mon Nov 2, 5:49 am ET
WASHINGTON (AFP) – CIT Group, a key lender to small US firms, declared itself bankrupt becoming the fifth largest failure in American history and dealing a new blow to market nerves.
CIT said late on Sunday it has agreed a restructuring plan with creditors that will reduce its debt by about 10 billion dollars.
But amid doubts about the prospects for the bank and the US economic recovery, Japanese shares fell more than two percent on Monday.
The bankrupt group received an emergency loan of 4.5 billion dollars on October 28 after struggling for months through the fallout of the global financial crisis.
It was also rescued in July after Washington rejected a bailout plea and had received 2.3 billion dollars of taxpayers money in December last year which will now probably be lost.
CIT, like many US banks, hit major problems because of the home mortgage meltdown which briefly crippled the global economy and is still causing major pain. The bankruptcy heightened international doubts about the strength of the US recovery.
Japanese stocks ended 2.31 percent lower on Monday because of fresh doubts about the sustainability of a US rebound, compounded by CIT's bankruptcy.
Manoj Ladwa, a senior trader at ETX Capital in London, said: "CIT?s bankruptcy is a stark reminder that a full-blown economic recovery is still a long way off. The commercial lending market just got tougher as small businesses will struggle to source funds."
CIT's board expressed confidence that the firm, which provides financing to nearly one million small and middle market companies and operates in 50 countries, could weather the bankruptcy storm.
"With the overwhelming support of its debt-holders, the board of directors voted to proceed with the prepackaged plan of reorganization for CIT Group Inc and a subsidiary that will restructure the company's debt and streamline its capital structure," the company said in a statement after a board meeting.
CIT said it aims to emerge from court protection by the end of the year.
"Under the plan, CIT expects to reduce total debt by approximately 10 billion dollars, significantly reduce its liquidity needs over the next three years, enhance its capital ratios and accelerate its return to profitability."
CIT Group chairman and chief executive Jeffrey Peek, who has announced he is stepping down at the end of the year, said the plan would allow subsidiaries, including CIT Bank in Utah state, to continue operations.
But not all experts shared the company's confidence.
"There's no guarantee," Scott Peltz, managing director of corporate restructuring at RSM McGladrey told The Washington Post about CIT's prospects, highlighting the need to get an investment grade rating.
In the voluntary Chapter 11 filing with the US Bankruptcy Court in New York, CIT reported total assets of 71 billion dollars and liabilities of nearly 65 billion dollars, making the bankruptcy the biggest behind Lehman Brothers, Washington Mutual, WorldCom and General Motors.
Founded in 1908, CIT became the largest lender to the US retail sector, although it also operates in aeronautics, defense and rail and has lent money to technology giants Dell, Microsoft and Toshiba.
Most worries now are focused on CIT's smaller customers, many of whom have fallen behind on repayments during the recession.
"This bankruptcy shows us the clearly the road to strong robust economic recovery is like the road to hell. Paved with good intentions. The ramifications will not be immediate but you can bet your last dime that the retailers and small businesses locked into CIT are going to find it a nightmare for financing," said Manus Cranny, analyst for MF Global Spreads in London.
About 85 percent of the holders of CIT's reported 30 billion dollars in bond debt participated in voting, with 90 percent supporting the bankruptcy plan, the company said.
Public money injected into CIT Group over the past year is expected to be wiped out in the restructuring.
The US government has injected tens of billions of dollars into the banking system because of the crisis. But when the government rejected a rescue in July, a US administration official said the decrease in the level of loans granted by CIT Group indicated that the firm was not too big to fail.
