Treasuries sold off yesterday on light volume as many market participants remained sidelined, waiting for earnings season to get going. Treasuries hovered around unchanged for most of the day, even as stocks were up 1%, but the bottom fell out of bonds as stocks accelerated higher to close up 2.5%.
CIT Group, one of the nation’s largest commercial lenders and a receiver of TARP funds, obtained the services of a bankruptcy lawyer over the weekend raising some concerns over the company’s ability to refinance their $2.5 billion in debt coming due this year. They have applied to issue debt under the Temporary Liquidity Guarantee Program (TLGP), which could be their only shot at survival, but have yet to hear from the government on whether they qualify. The WSJ is reporting this morning that CIT Group, which gained bank holding company status in 2008, is currently discussing their options with regulators.
Many are saying that it is unclear how broad of a threat CIT poses to the broad financial market. The rhetoric sounds far too much like Lehman Brothers in early September, and we all know how that turned out. The market cannot stomach a bankruptcy of this magnitude in my opinion. For a company like CIT to be denied TLGP, a program that was designed solely to help banks refinance their debt, confuses me, considering that is their exact problem. Whether the solution is a FDIC brokered sale of CIT to a larger institution that can take on the balance sheet or just allowing CIT to issue FDIC insured debt through the TLGP, the sooner it is resolved the better. The credit markets are functioning, but are still very fragile. Letting CIT enter bankruptcy would be like taking the stitches out before the wound is fully healed.
Cliff J. Reynolds Jr., Investment Analyst
CIT Group, one of the nation’s largest commercial lenders and a receiver of TARP funds, obtained the services of a bankruptcy lawyer over the weekend raising some concerns over the company’s ability to refinance their $2.5 billion in debt coming due this year. They have applied to issue debt under the Temporary Liquidity Guarantee Program (TLGP), which could be their only shot at survival, but have yet to hear from the government on whether they qualify. The WSJ is reporting this morning that CIT Group, which gained bank holding company status in 2008, is currently discussing their options with regulators.
Many are saying that it is unclear how broad of a threat CIT poses to the broad financial market. The rhetoric sounds far too much like Lehman Brothers in early September, and we all know how that turned out. The market cannot stomach a bankruptcy of this magnitude in my opinion. For a company like CIT to be denied TLGP, a program that was designed solely to help banks refinance their debt, confuses me, considering that is their exact problem. Whether the solution is a FDIC brokered sale of CIT to a larger institution that can take on the balance sheet or just allowing CIT to issue FDIC insured debt through the TLGP, the sooner it is resolved the better. The credit markets are functioning, but are still very fragile. Letting CIT enter bankruptcy would be like taking the stitches out before the wound is fully healed.
Cliff J. Reynolds Jr., Investment Analyst
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