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CIT Says U.S. Support Unlikely


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Guest kawikaho

Watch out below!  Went short CIT a week ago via puts.  Same with GM.  Geez, it seems like there is a major bankruptcy every month.

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Nice find Sanjeev. I dug up the actual letter the bloomberg article was discussing.

 

[actual pdf article attached]

Dear Secretary Geithner:

I am writing to urge the Administration in the strongest terms to address the critical

situation facing CIT Group Inc. and to ask that you provide all possible government

assistance. Allowing yet another major financial institution to go bankrupt would only

exacerbate the already severe situation faced by the retail industry and our nation’s

economy.

By way of background, the National Retail Federation represents an industry with

more than 1.6 million U.S. retail establishments, more than 24 million employees – about

one in five American workers – and 2008 sales of $4.6 trillion.

CIT is one of the very few lenders who act as a “factor” for the thousands of small

and middle-sized vendors who supply U.S. retailers with much of the merchandise sold in

their stores. As you know, a factor provides the short-term financing that allows a vendor to

produce goods once an order from a retailer has been received. Without factors, suppliers

could be forced to shutter their doors or retailers would be required to pay up front and draw

down on their own credit lines at a time when credit remains difficult to obtain. If CIT were to

fail, a chain reaction would be set off that could very well leave retailers with a shortage of

merchandise during the crucial holiday season this fall.

If the criterion for whether a financial institution should receive government

assistance is whether it is “too large to fail,” CIT is most certainly too important to the retail

industry to be allowed to fail, and the retail industry is too important to the economy to be

placed under additional stress. A failure of CIT would impact thousands of retailers and,

consequently, the consumer spending that makes up two-thirds of our nation’s economy.

That cannot be allowed to happen at a time when retailers are already struggling to survive

the national recession.

I strongly encourage the Treasury Department to take a very close look at the role

CIT plays in the retail industry and act appropriately to ensure that this essential lending

institution remains economically viable. The jobs of countless hard-working Americans are

at stake.

Sincerely,

Tracy Mullin

 

Here is the website where I found the pdf. http://nrf.com/modules.php?name=News&op=viewlive&sp_id=761

 

 

 

 

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Nice find Sanjeev. I dug up the actual letter the bloomberg article was discussing.

 

 

Good find, Josh. I am guessing that CIT didn't spend enough lobbying congress, since they didn't get bailed out.

 

Out of question, does anyone know anything about how a CIT bankruptcy will happen? If all their investments are split up, would we be able to buy individual debt from individual companies? It seems to me that buying Dunkin' Doughnuts debt wouldn't be a bad idea (at the right price)-though, I do have a pretty limited knowledge of the company.

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Guest Broxburnboy

"Good find, Josh. I am guessing that CIT didn't spend enough lobbying congress, since they didn't get bailed out."

 

They didn't spend enough lobbying GOLDMAN SACHS, who runs economic policy and the government. Congress is irrelevant.

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Factoring is a commodity business, but the quality of the business also depends on the relationship between liquidity provider and the client.  Long-term relationships and a judicious eye can weed out the bad apples from the liquidity provider's portfolio.  In this environment, former "quality customers" are likely causing writeoffs and CIT has died a death of 1000 cuts.

 

Factoring is still a required business and it's likely that there will be a vacuum as CIT heads into bankruptcy.  I would expect that CIT's assets will be bought by a banking interest.  In Canada, the 2 largest providers are GE Capital and Accord Financial who have segmented the market.  Accord is the provider to the small end of the market (i.e. below $10M sales).  These businesses may experience some customer wins since they both have presence in the US markets along with many other US providers.  This is still a tricky environment, so pricing from the provider side will likely firm.

 

-O

 

CIT is talking to advisors on what they could do without U.S. govenment intervention.  I thought the interesting part of this article was exactly what impact a CIT failure would have on the manufacturing and retail industry.  Cheers!

 

http://www.bloomberg.com/apps/news?pid=20601087&sid=a_7Sejneng2Y

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"They didn't spend enough lobbying GOLDMAN SACHS, who runs economic policy and the government. Congress is irrelevant."

 

How they got there could be questionable, but the reality is that Goldman now dominates the Wall Street scene. Morgan Stanley is miles behind and JP Morgan has to deal with consumer loans, credit cards and other dragging stuff.

 

At the current level, I think that Goldman Sachs is very attractive. I was listening to Cramer mentioning that they could earn $30 in 2010 and after being shocked, I took a look at their business, their latest quarter and I would say that yes, it is quite possible. The latest analyst poll forecasts EPS of $16.05 in 2010. This is going up currently and will reach $20 at the very least. FYI, their current annualized rate is $22.

 

Then, if you look at what this company traded at over the last decade with a multiple of the competition that they are facing today, you have to assume that they will be able to grow almost as fast and will need to trade at least at these averages. I am not talking crazy numbers: 13 times earnings, 2.2 times book. This stock could reach $300 faster than most realize.

 

IMO, this is a very solid opportunity. Low P/E, ROE north of 20%, competition cut in half, very little legacy issues, attracting most top talent. You may hate them, but their position is enviable in the financial sector. Even with possible new restrictions from the government it is hard to imagine them not doing well.

 

Cardboard

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Cardboard, congrats on being able to look at the facts.  I almost pulled the trigger on GS during the downturn after looking at it but was more comfortable by a lot with WFC.  The fact is that this company is well run, and for all the conspiracy theories and whatever, the people I've met who worked here were sharp and focused.  Their frachise is intact, their service is generally needed, and for all that it frustrates me, I think they have competitive advantages as well.

 

After the market has moved up a bit, there were still some good opportunities in some junior bonds/preferreds which I purchased for a 40% discount to face and a current yield of 10+%.  It's a small position, but I'm fine with that.

 

Goldman is a survivor... both GS and JPM are great companies and I think they get tarred with a common brush too often.  I'd bet that most folks haven't looked through GS's financials like you and I have... interesting company.  Before the downturn GS spelled clearly out in it's 10-k how it prepared for a crisis, how they had emergency liquidity, etc.  The fact that they were prepared and ready to exploit the competition should be seen as a sign of strength.

 

The government ties I'm sure have some unseemly aspects, but at least the company is competant... I can at least believe there is a reason why their alums are so powerful.  They were simply smarter and harder working.

 

Ben

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Guest kawikaho

Woo hoo!  I'm in the money.  I'm in the money.  I'm in the money, honey! duh duh du du dah.

 

Yeah, go long GS.  They have very little competition, and they're fed lots of profitable trades by gov't insiders.  They front run their trades too.  Bastards.  It's a shame what the gov't did to CIT.  It's like their policy regarding nuclear weapons: only our allies can have it, anyone else can't.  I believe, if you're gonna bail out companies, either bail them all out, or don't bail anyone out.  

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http://www.bloomberg.com/apps/news?pid=20601087&sid=a0kAlJZXFtzQ

CIT Group’s Bondholders Said to Discuss Debt Swap (Update2)

July 16 (Bloomberg) -- CIT Group Inc. bondholders are holding calls today to discuss whether to swap some of their claims for equity to reduce the 101-year-old lender’s indebtedness, according to a person familiar with the situation.

 

Pacific Investment Management Co., CIT’s largest bondholder based on regulatory filings, was to host a call, and debt owners are considering hiring financial and legal advisers, said the person, who declined to be identified because the discussions are private. The company hasn’t proposed an exchange offer.

 

CIT is running short of cash and may need as much as $6 billion to avoid filing for bankruptcy protection, after the U.S. wouldn’t give the firm a second bailout, CreditSights Inc. analysts said. CIT, which has reported $3 billion of losses in the last eight quarters, received $2.33 billion in funds from the U.S. Treasury in December and hasn’t been given access to the Federal Deposit Insurance Corp.’s debt-guarantee program.

 

-O

 

CIT is talking to advisors on what they could do without U.S. govenment intervention.  I thought the interesting part of this article was exactly what impact a CIT failure would have on the manufacturing and retail industry.  Cheers!

 

http://www.bloomberg.com/apps/news?pid=20601087&sid=a_7Sejneng2Y

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