FT is reporting that if CIT, the ailing small- and medium-sized business lender, fails, the former investment Goldman Sachs might receive another billion dollars while the taxpayers lose $2.3bn.
The payment stems from the structure of a $3bn rescue finance package that Goldman extended to CIT on June 6 2008, about five months before the Treasury bought $2.3bn in CIT preferred shares to prop it up at the height of the crisis. The potential loss for taxpayers would be the biggest to crystalise so far from the government’s capital injection plan for banks.
The agreement with Goldman states that if CIT defaults or goes bankrupt, it “would be required to pay a make-whole amount” that totals $1bn, the people familiar with the matter said.
Goldman backlash, anyone? People are beginning to complain about taxpayers standing to lose that much. Yet if contract stipulates that Goldman would be paid in the event of CIT’s failure, then what? Is this going to create another issue of fighting over contract terms a la AIG and the backlash against the hundred-million-worth of bonuses it agreed to pay to its employees?