Nov
01
Two critical pieces of information regarding a CIT bankruptcy
Posted (Van Santos) in Business on November-1-2009
As I’m sitting her enjoying my extra hour (thanks daylight savings), having a few home baked goods (thanks mom), and vaguely pay attention to the TV (thanks Adult Swim), I am also catching up on some RSS reading that I did not manage to get to over the last 24 hours.
One story that was lost in the mix comes from The Wall Street Journal: CIT’s Swoon Hit Taxpayers
The focus of the article is initially addressing the financial hit US taxpayers will take – roughly $2.3B in tax payer funds, thank you very much – but actually contains information that has not surfaced on a major scale when discussing expected CIT Bankruptcy.
Question one: How will a bankruptcy impact CIT Bank, the CIT retail banking unit?
It will not.
The Utah based bank, with roughly 10B in assets, will not be part of the bankruptcy filing.  The recent Capmark Financial bankruptcy followed the same pattern, so keeping the retail banking unit out of restructuring is not surprising. This does not guarantee the banking unit is out of the woods…
Question two: What type of credit contraction will take place once the bankruptcy takes place?
While the worldwide impact on credit cannot be measured with any sense of accuracy at this point the lending capacity of CIT moving forward can be identified.  That number – roughly 20% or less of the 2007 capacity. If that statistic is not making you question how big this bankruptcy filing has the potential to be I’m not sure what would.
My initial reaction would be to ask what institution will step in to take up the slack but I cannot think of a bank will to take such risk.  I cannot think of three banks willing to take that risk, actually.  While some business will be serviced by other financial institutions, the cost of credit will be higher and less funding will be available. This may lead to a wave of small business bankruptcy throughout the United States.
As stated previously I feel this event – coupled with two other recent events – may be felt for years to come in ways people cannot yet comprehend.

As I’m sitting her enjoying my extra hour (thanks daylight savings), having a few home baked goods (thanks mom), and vaguely pay attention to the TV (thanks Adult Swim), I am also catching up on some RSS reading that I did not manage to get to over the last 24 hours.

One story that was lost in the mix comes from The Wall Street Journal: CIT’s Swoon Hit Taxpayers

The focus of the article is initially addressing the financial hit US taxpayers will take – roughly $2.3B in tax payer funds, thank you very much – but actually contains information that has not surfaced on a major scale when discussing expected CIT Bankruptcy.

Question one: How will a bankruptcy impact CIT Bank, the CIT retail banking unit?

It will not.

The Utah based bank, with roughly 10B in assets, will not be part of the bankruptcy filing.  The recent Capmark Financial bankruptcy followed the same pattern, so keeping the retail banking unit out of restructuring is not surprising. This does not guarantee the banking unit is out of the woods…

Question two: What type of credit contraction will take place?

While the worldwide impact on credit cannot be measured with any sense of accuracy at this point the lending capacity of CIT moving forward can be identified.  That number – roughly 20% or less of the 2007 capacity. If that statistic is not making you question how big this bankruptcy filing has the potential to be I’m not sure what would.

My initial reaction would be to ask what institution will step in to take up the slack but I cannot think of a bank will to take such risk.  I cannot think of three banks willing to take that risk, actually.  While some business will be serviced by other financial institutions, the cost of credit will be higher and less funding will be available. This may lead to a wave of small business bankruptcy throughout the United States.

As stated previously I feel this event – coupled with two other recent events – may be felt for years to come in ways people cannot yet comprehend.

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