Key lender CIT posts $1.68B loss, threatens bankruptcy

Commercial lenderCIT Group said Monday in a regulatory filing that it lost $1.68 billion in the second quarter, and again warned it might have to file for bankruptcy protection if it fails to restructure its business.

Losses mounted in the quarter as borrowing costs exceeded income from lending to customers, and as CIT cit set aside more money to protect against future loan losses.

CIT lost $4.30 a share during the quarter ended June 30. In the same quarter last year, CIT lost $2.08 billion, or $7.88 a share, due to a $2.55 billion charge from discontinued operations.

CIT's loss from continuing operations during the most recent quarter totaled $1.62 billion, compared with earnings from continuing operations during the year-ago period of $47.9 million.

Analysts polled by Thomson Reuters, on average, forecast a loss of $1.95 per share for the latest quarter.

In its quarterly report to the Securities and Exchange Commission, CIT said there is still "substantial doubt" about its ability to continue operating.

Just last month, CIT was bailed out with a $3 billion loan from some of its largest bondholders as it faced a cash crunch. It also launched an offer to repurchase $1 billion in outstanding debt that was successfully completed Monday, helping to stave off a potential bankruptcy filing.

Despite the completion of the tender offer, CIT is still facing some challenges. It could continue to struggle with liquidity issues as more debt is due to mature next year.

CIT Group, one of the nation's largest lenders to small and midsize businesses, has been devastated by the downturn in the credit markets and is trying to restructure its operations to remain in business. CIT used to rely heavily on cheap, short-term debt to fund its operations — a type of funding that essentially evaporated during the credit crisis last year.

With weak credit markets and concerns about its survival, CIT's borrowing costs have begun to outpace the money it generates from lending. CIT recorded a negative net interest revenue of $19.1 million during the second quarter, compared with positive revenue of $169.8 million a year ago.

Furthermore, as the economy remains in a recession, more of CIT's customers are falling behind on repaying loans. That has forced CIT to set aside more cash to cover those losses, a problem nearly all lenders have had during the recession. CIT set aside $588.5 million for credit losses during the second quarter, compared with $152.2 million during the same quarter last year.

Some experts fear if CIT collapses it would deal a crippling blow to an economy still bleeding hundreds of thousands of jobs a month despite a nearly $800 billion federal stimulus program.

The retail sector would be hit especially hard. CIT serves as short-term financier to about 2,000 vendors that supply merchandise to 300,000 stores, according to the National Retail Federation. Analysts say 60% of the apparel industry depends on CIT for financing.

Last week, CIT reached an agreement with the Federal Reserve Bank of New York that puts the company under the oversight of federal regulators. The agreement requires CIT to submit a plan for how it will maintain sufficient cash. It must also provide budgets through the end of 2010 that include details about how the company will meet current and future capital requirements.

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