CIT Poised for 4th Largest Bankruptcy Ever

(CBS)  CIT may not be a household name, but its borrowers are - Dunkin' Donuts, Filene's Basement, Dairy Queen, and many others.

The company is the nation's largest lender to small businesses. It has more than $5 billion of outstanding loans to more than 1 million borrowers. And the government appears ready to allow it to become the fourth-largest bankruptcy in U.S. history, as CBS News correspondent Nancy Cordes reports

"CIT made a lot of very aggressive loans - loans to businesses that are on the financial edge," said Mark Zandi, chief economist for Moodys.com. "Many of them can't pay CIT back; therefore, CIT is in its own financial trouble."

"Discussions with government agencies have ceased," the $60 billion company announced this morning. CIT had hoped for a second government rescue after getting $2.3 billion in bailout funds last fall. ( Read more about CIT's negotiations with the government in CBSNews.com's EconWatch blog.)

So is there any chance, if CIT goes under, that taxpayers will get all that money back?

"I have high hopes and low expectations," said Rep. Jeb Hensarling, R-Tex. "I mean, that's the reason you have bankruptcy courts - to sort out claims of creditors, including those of the American taxpayer."

But what about the borrowers? CIT says it provides 60 percent of the loans to the retail industry.

At the apparel mart in Atlanta today, vendors were in a panic.

"They are a very big player in our business," said Camille Sheppard, owner of Camille & Co. "They own half of our business, I would say."

And with credit still tough to come by, retailers are bracing for a chain reaction - more layoffs, more store closures. Just when the administration is trying to promote optimism.

"I think generally what you are seeing in the U.S. is a very encouraging improvement in the confidence in the overall stability of the financial system," said Treasury Secretary Timothy Geithner.

Government sources tell CBS News they did not believe CIT could ever turn a profit and they didn't want to get stuck holding the bag. Barring a last minute rescue, the company will file for Chapter 11 as soon as tomorrow.

[gosstom]

I think generally what you are seeing in the U.S. is a very encouraging improvement in the confidence in the overall stability of the financial system," said Treasury Secretary Timothy Geithner.

Go tell that long tongue liar
Go and tell that midnight rider
Tell the rambler, the gambler, the back biter
Tell 'em that God's gonna cut you down

[smoknmirrors]

Years ago I watched an honorable man forced into bankruptcy because one loan officer in one lending institution was so short sighted as to demand immediate payment in full when immediate payment in full was not even a doable choice. All of this man's other creditors were working with him to help him avoid the loss which bankruptcy makes inevitable. This loan officer's insistence forced the man into a choice that reverberated throughout the community and this man's life from that day forward. Had the loan officer accepted an interest only payment or two, had the loan officer accepted an "in lieu" payment with a secondary wrap around mortgage, anything of some intellectual merit, the entire episode would have become just another bad moment in financial history, been rectified for all parties within 50 days and life could have been good again for this honorable man. I have, since that time, been much more aware of the latitude some loan officers have to make or break a deal/business/person, and I have avoided those dark souls who seem to enjoy the power to destroy that comes with their position. There are ways to avoid bankruptcy, but there has to be some intellectual foreplay in the process. Too often the parties are not equal in that arena. Too often one of the parties wants to get right to the screwing.

[John_Merritt]

That's gotta hurt, I guess? From what I understand CIT is a holding company that provides funding for many small businesses. I was watching some local financial channels over the past few weeks and they stated CIT is responsible for providing funding for up to 1000 retailers. Whoa! That does not bode well, does it?

[John_Merritt]

I guess the 1,000 retailers equals 1,000,000 businesses, so we must be talking about retailing chains.

[Kuei1248]

THIS IS HILLARIOUS!!! Citi has been claiming all week they need more bailout to prevent bankruptcy. Now, today, they claim a $3 billion profit! Americans are the biggest, DUMBEST suckers in the world. I told everyone before the first bailout was approved that this whole thing was nothing more than a scam. Yup! Right again. HEHEHEHEHE