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Tuesday, October 13, 2009

Report: CIT Nears Bankruptcy, CEO to Resign

by Calculated Risk on 10/13/2009 08:23:00 AM

From Reuters: CIT debt swap struggles, bankruptcy looms. Reuters is reporting that "sources familiar with the matter" say bondholders are showing little interest in the debt exchange offer and a bankruptcy is now more likely.

Also this morning CIT announced that CEO Jeffrey Peek is resigning effective Dec 31st.

The possible bankruptcy of CIT is a major concern because CIT provides financing for about one million small businesses. And small businesses are already having trouble obtaining credit.

From Peter Goodman in the NY Times: Credit Tightens for Small Businesses

Many small and midsize American businesses are still struggling to secure bank loans, impeding their expansion plans and constraining overall economic growth ...

Most banks expect their lending standards to remain tighter than the levels of the last decade until at least the middle of 2010, according to a survey of senior loan officers conducted by the Federal Reserve Board. ... Bankers worry about the extent of losses on credit card businesses ...[and] are also reckoning with anticipated failures in commercial real estate. Until the scope of these losses is known, many lenders are inclined to hang on to their dollars rather than risk them on loans to businesses in a weak economy ...
Also see: Small Business and Employment

A CIT bankruptcy will probably lead to even tighter credit for many small businesses exacerbating the current credit situation.