CIT Will Not Receive Further Govt. Assistance
CIT Group, Inc., a major small business lender, sits on the brink of collapse.
WASHINGTON, July 15, 2009— -- CIT Group Inc., a leading provider of financing to small businesses and middle market companies, announced Wednesday that it is unlikely to receive additional government support in the near future.
The board of directors and management is looking for alternative financing, according to a statement released by the company Wednesday.
Dunkin' Donuts and Dillard's department stores are two of CIT's major clients who were anxiously awaiting news on the company's fate Wednesday.
The lender, in existence for more than 100 years, now accounts for around 60 to 70 percent of small business financing.
A Treasury spokesman told ABC News, "We have a comprehensive and aggressive strategy to restore stability to the financial system as a whole so that credit flows to both businesses and consumers and puts us on a path to sustainable growth. As part of that strategy, we have put in place a powerful set of innovative financing mechanisms to help restart the overall credit markets that are critical to growth.
Even during periods of financial stress, we believe that there is a very high threshold for exceptional government assistance to individual companies."
The lender is struggling under the weight of ongoing losses, a decrease in liquidity and billions of dollars in debt that is about to come due. Since it has already received $2.33 billion from the Troubled Asset Relief Program, there are only so many possible solutions left.
In recent days, the Treasury Department, Federal Reserve and the Federal Deposit Insurance Corp. have debated behind closed doors what to do to help CIT.
CIT recently asked the FDIC for a debt guarantee, an industry source told ABC News, which would allow CIT to issue debt that would be guaranteed by the government and enable the company to bring in sorely-needed cash and continue lending to businesses. The FDIC balked at the request, so CIT turned to the Treasury department and the Federal Reserve.
According to the source, the those two entities are now working on another possible solution: a combination of debt restructuring, short-term financing, asset transfers under Section 23A of the Bank Holding Company Act, and access to the Fed's discount window.
Meetings, including some involving the White House, are ongoing, and calls involving Treasury Secretary Tim Geithner and FDIC chair Sheila Bair have taken place in recent days, the source said.
"CIT is a major lender for small businesses," said Scott Talbott of the Financial Services Roundtable in Washington, which represents CIT. "The liquidity solution they are seeking will keep many small businesses up and running."
But, he warned, "Not helping CIT would make matters worse. They are the player in this market."
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