CIT crisis-proof "United States Government assistance" wisdom

US Treasury Secretary Geithner "is closely following the" century-old shop CIT Group due to liquidity constraints that progress on the verge of bankruptcy, says United States Government with proper handling of this matter. If the company did not get their required government assistance while on the road to bankruptcy, the United States will have 760 manufacturing enterprise is affected, and another 30 000 retailers will bear the risk of "sudden".

To enter the United States this week, century-old shop CIT Group because of the liquidity shortage and on the verge of bankruptcy news that many people are scary. While the media on the c-level executives weekend meeting with Washington officials reported more emergencies so that people think of 10 months previously occurred in Lehman, Merrill Lynch and other investment firms had a curtain. However, US Treasury Secretary Geithner Monday's response on this issue is "is closely following the progress of the CIT crisis", and that the United States Government with proper handling of this matter.

The scale at 750 million commercial lending group already has a 101-year history, mainly for the provision of loans for SMEs, in this industry leading position. According to data released by CIT, as at the end of the first quarter of this year, the company's assets and liabilities for 757 million, to $ 682, including $ 3 billion in deposits; currently accepts credit SME clients have more than 100 000. However since the first quarter, the company is a serious liquidity shortage crisis. According to the reputation rating forecast HKSAR, if the Government cannot help, the fastest CIT will occur in April next year, due to the breach of 21 million of the group credit limit will then expire. According to the CIT leaked an internal report, if the company did not get their required government assistance while on the road to bankruptcy, the United States will have 760 manufacturing enterprise is affected, and another 30 000 retailers will bear the risk of "sudden".

News, 13, Moody was "CIT liquidity conditions and the survival prospects of concern about the increasing" will CIT priority unsecured credit ratings of 4 levels, from "Ba2" to "B3"; sandp downward CIT rating level, from "BB-" down to "CCC +", at the same time issued a statement saying that if the company was unable to reach and United States Federal Deposit Insurance Corporation (FDIC) debt guarantee scheme or through other means to obtain liquidity, "we will consider the issue as bad debt." Monday, CIT slump near 12 per cent, to $ 1.35, spare once fell to $ 1.08; CIT coupon rate is 5% of corporate bonds due 2014 from last Friday's 57 cents to 48 cents.

However, judging from the current United States Government, and industry analysis, while the CIT as United States heavyweight commercial lending institutions, its survival crisis facing the attention, but it is clear that there is awareness of the problems is far to "have a systemic risk" in height. The problem is that in response to those "too big to fail" financial institutions lend a generous hand after the United States Government will choose how to salvage as CIT scale relatively smaller, on financial system threat limited but real economy are closely related to financial institutions. At present CIT hopes to have a federal loan guarantees, but according to the United States officials said Monday that the United States Government on such a request may not accept according to the order.

Industry speculation about a possible solution is that the Government allow CIT into orderly bankruptcy proceedings, but the commitment in its restructuring after certain level of financial support, allowing the reorganized new companies to become a more robust and profitability increased lending company. This kind of guessing the reason based on three points. First of all, analysts believe that the United States regulatory agencies now fear that further implementation of the generous aid may damage the operation of private market full recovery. Therefore, the BurnRights will not cause systemic risks of the United States Government may be more willing to rely on market forces to solve the problem.

Second, the consequences of the closure of CIT should not be so serious. Current Washington officials in few people think of bankruptcy will CIT Bear Stearns or AIG such bodies would threaten the entire financial system, and the CIT on United States entity economic threats have not imagined. Although the United States, great and small loan amount, but business highly decentralized. According to the United States BusinessWeek data provided, the current United States each year, SME loans of more than 1 trillion, and CIT loan only accounts for the total size of a few percentage points. "If the CIT disappeared tomorrow, does not mean the end of the world has come. "United States AEX commercial finance company CEO Stephen? Bush said," this may give it an existing customer cause some inconvenience, but the more credible a lending institution will cover seconds CIT vacancies. ”

Finally, the issue of CIT even without the Government's overall aid, is relatively easy to solve, because the crisis more sources to high-cost loans, not the bad loans. Prior to this crisis of major banks more because of bad loans or toxic assets surge in liquidity difficulties, they are disposed of these up to billions of dollars, long desired a decade or even decades would make it possible to recover the bad loans. By contrast, the CIT loan allocation relative stability. Data show that as of 31 March for the first quarter, CIT reversed not recycling loan 2.41% United States Bank 2.85%, the United States express 8.5%.

CIT's problem is financing. Traditional banks mainly rely on cheap and stable customer deposits for its lending and financing, CIT is long-term reliance on wholesale Fund, while in the market decline from the Fund for financing usually have to pay a very high cost. The result is the net interest rate, CIT, namely the payment of profit in wholesale Fund amount and loan interest income between profit space in the first quarter of the total profits shrank to the assets of 1.13%, less than half of last year. This, together with bad loans increase makes CIT first quarter record 4.38 billion loss.

Analysts believe that CIT can pass application

Bankruptcy to walk out of the current difficulties. In other words, although the shareholders could be affected by loss, but by allowing creditors of the subsidiary ticket holders will be his debt Exchange into the reorganized company, you can reduce the company's debt. In addressing the issue of the balance sheet, the company rating may be upgraded, the future cost of borrowing will naturally goes down for CIT, out of the predicament of the key is to reduce the cost of financing.

Of course, in the process, the Government cannot stand by and do nothing. At the end of December last year, the CIT to bank holding company, then from the Ministry of finance was 23.3 billion rescue Fund. Sources said that Government officials consider adopting a package of programmes, including through an exemption from regulatory requirements for CIT can more easily move assets from parent company transferred to its banking sector, while allowing CIT through other governmental assistance projects to receive financial assistance. Analysts believe that, to accelerate the restructuring of CIT, regulators can undertake its reorganized using specialized Federal Deposit Insurance Corporation (FDIC) funds to carry out its part of the debt, in order to ensure its security on 100 million SMEs loans of continuity. Calculation of the United States Government may have to spend billions of dollars for this, but compared to previously on the 19 large bank rescue costs, this is only partly right. More importantly, as BusinessWeek says, this solution can provide the United States taxpayers that frequently took out of billions of dollars helping financial institutions time has come to an end.