Talks with the government to rescue small-business lender CIT Group has failed giving rise to rumors that the firm is nearing its Chapter 11 filing. From the WSJ:
Ailing business lender CIT Group Inc. said Wednesday “there is no appreciable likelihood” it will receive fresh government support in the near future, marking the first time since the collapse of Lehman Brothers that the U.S. has declined to aid a struggling financial company of significant scope and size.
On Wednesday, the company was aiming for $2bn in rescue funds from existing bondholders but that didn’t materialize along with the collapse of any talks that the government would provide bridge financing assuming CIT is able to provide a viable survival plan or taking anything from the TARP. Upon conducting a stress test similar to what the 19 financial institutions had a couple of months back, it was found that the lender would be needing as much as $4bn under the most stressful scenarios.
WSJ is also citing that the $2.3 investment by the government via TARP could be gone if the CIT Group files for bankruptcy.
More on this story HERE.
The firm is not a Citigroup or a Bank of America whose demise would or could mean systemic panic. But the question is, is the market ready for a bankruptcy like this? I don’t think it will be causing panic or bring us back to the September days or even any of the less wild ones that transpired within the last year or so. However, I think the problem (or consequence) will come in the form of a dragged recovery courtesy of failed businesses and suffering retailers, just when many are counting on them to help push the country’s GDP back up into the positive territory, one it has not seen since December of 2007 when the recession officially started. It apparently wouldn’t be a quick and sudden like a heart attack (where the patient apparently survives). Rather it’s a story of an injured athlete who will go through an immense level of rehabilitation in order to get back on to the field (or the court or whatnot).