The federal government has decided not to offer further financial assistance to CIT Group Inc., casting doubts on the company's viability and marking the major taxpayer loss from the bailout program.
The company, which has been under severe stress due to its outsized role in the commercial lending market, announced last weekend that it had hired a law firm to explore bankruptcy options. But it said at the same time that it was negotiating with federal regulators in the hopes of securing additional bailout funding or loan guarantees.
Treasury officials told the Wall Street Journal that they conducted a stress test of CIT's balance sheet this week and determined that the firm required at least $4 billion to survive. But without a solid reorganization plan, officials said they could not risk losing additional taxpayer money. The $2.3 billion in public money that CIT received under the Troubled Asset Relief Program is gone, they told the paper.
"Even during periods of financial stress, we believe that there is a very high threshold for exceptional government assistance to individual companies," a Treasury spokesman said in a statement.
The White House chief of staff, Rahm Emmanuel, echoed those feelings, calling the decision not to provide further assistance "a symbol of a different phase." Critics have charged the government with being too sensitive about conspicuous bank failures and wasting money on firms that ought to fail owing to bad business practices.
Frustrated in its appeals to the federal government, CIT said it would negotiate with its debtholders in hopes of raising $2 billion to continue operations.
CIT is not among the largest of the companies to received bailout funding, but it plays a critical role in the nation's business community. It is a prominent lender to small and medium-sized businesses - especially retailers - and concern is growing among them that their access to credit will dissolve along with CIT's business fortunes.
Some of these same companies, however, have played a role on hastening CIT's distress. Once the bank announced it was considering bankruptcy, its customers quickly drew down their established credit lines, exacerbating CIT's cash crunch.
The company, which has been under severe stress due to its outsized role in the commercial lending market, announced last weekend that it had hired a law firm to explore bankruptcy options. But it said at the same time that it was negotiating with federal regulators in the hopes of securing additional bailout funding or loan guarantees.
Treasury officials told the Wall Street Journal that they conducted a stress test of CIT's balance sheet this week and determined that the firm required at least $4 billion to survive. But without a solid reorganization plan, officials said they could not risk losing additional taxpayer money. The $2.3 billion in public money that CIT received under the Troubled Asset Relief Program is gone, they told the paper.
"Even during periods of financial stress, we believe that there is a very high threshold for exceptional government assistance to individual companies," a Treasury spokesman said in a statement.
The White House chief of staff, Rahm Emmanuel, echoed those feelings, calling the decision not to provide further assistance "a symbol of a different phase." Critics have charged the government with being too sensitive about conspicuous bank failures and wasting money on firms that ought to fail owing to bad business practices.
Frustrated in its appeals to the federal government, CIT said it would negotiate with its debtholders in hopes of raising $2 billion to continue operations.
CIT is not among the largest of the companies to received bailout funding, but it plays a critical role in the nation's business community. It is a prominent lender to small and medium-sized businesses - especially retailers - and concern is growing among them that their access to credit will dissolve along with CIT's business fortunes.
Some of these same companies, however, have played a role on hastening CIT's distress. Once the bank announced it was considering bankruptcy, its customers quickly drew down their established credit lines, exacerbating CIT's cash crunch.
published July 16, 2009, 0 Comments
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