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Who will be CIT’s Buffett?
The behind-the-scene negotiations surrounding CIT Group’s threatened bankruptcy filing is bringing to mind the 2001 collapse of Finova, another sizeable mid-market lender.
 On the eve of Finova’s bankruptcy filing in March 2001, Warren Buffett seemingly came to the rescue with a $6 billion loan package to help keep the financial firm running in bankruptcy and payoff creditors. The financial package, which Buffett put together with Leucadia National Corporation, came from a new company called Berkadia.
The offer from Buffett set-off an usual bidding war for the right to provide rescue money to the bankupt company. Rival bids soon emerged from GE Capital and Goldman Sachs.
Ultimately, the Buffett and Leucadia partnership prevailed. Finova, which did a lot of factoring for mid-sized companies like CIT, emerged from bankruptcy and the loan was paid off several years ago.
The Factor
Don’t worry this is not a column about Bill O’Reilly, the voluble Fox News personality. No, what I’m talking about is the bread-and-butter business of CIT Group, the mid-market lender now limping along on life support.
The Wall Street Journal today wrote one of the first decent articles discussing CIT’s importance in the world of factoring–an ancient form of business financing that CIT long dominated in the US.
CIT doomed by PE
The most compelling argument for saving CIT Group from collapse is the impact it would have on small- and mid-sized business that depend on the New York-based lender for financing. But it’s increasingly looking like that argument is more hype than anything else.
First of all, CIT pretty much hasn’t been doing any new lending for the past six months, when its financial troubles really began to mount. Most of the lines of credit the firm has out to hundreds of thousands of small companies were arranged long before the collapse of Lehman Brothers.
Could Goldman pinch CIT?
It appears the federal government is on the verge of walking away from CIT Group and the same can be said for Goldman Sachs–even though the investment firm is one of the mid-market lender’s biggest bankers.
On Monday, I suggested that Goldman CEO Lloyd Blankfein could turn around the public’s nasty impression of his Wall Street firm by stepping in an buying-out CIT. But I didn’t really expect it to happen. Then yesterday there was a rumor floating around that Goldman, with the tacit support of the Obama administration, was trying to put together a private-sector bailout package for CIT.
Who pays on Goldman’s CIT hedges
Goldman Sachs keeps saying it has no exposure is CIT Group were to go bust, even though it has a $3 billion line of credit to the ailing mid-market lender.
David Viniar, the investment bank’s CFO, reitereated that mantra today during a conference call with analysts, saying Goldman has sufficient collateral and hedges to render any losses on CIT immaterial. Of course, that’s what Goldman said about its exposure to American International Group, even after taking $13 billion from the Fed to retire some CDOs that AIG had written credit defaults swap on.
Goldman’s “True Blood” moment
-Matthew Goldstein is a Reuters columnist. The opinions expressed are his own.-
Goldman Sachs CEO Lloyd Blankfein has an image problem on his hands.
The most ardent critics of his firm are likening it to a blood-sucking vampire, while others simply see the Wall Street investment bank as a greedy and ruthless financial titan. But there is a way for Blankfein to start turning public opinion around, and that involves a quick buyout of ailing mid-market lender CIT Group, which provides financing to some retailers, manufacturers and aviation operators.
While a collapse of New York-based CIT would not pose the kind of systemic risk that last September’s bankruptcy of Lehman Brothers did, the lender’s sudden disappearance from the market would make it even more difficult for some small- and mid-sized American companies to finance their operations.
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The Wall
