Questions Remain On CIT Future

The latest news on CIT Group is that the company will submit two plans to the Federal Reserve in the next few weeks detailing its plans for survival. Today’s Wall Street Journal article seems to say the Fed isn’t a believer yet. (Subscription Required)

I’ve spent a lot of time recently writing about CIT Group and its troubles. The more I write about it the more questions I have. If I were a CIT customer, I’d be asking myself these questions:

- Where will CIT Group get funding for $800 million in notes that are due this November? Would the bondholders ante up it again? The company also has said it will need at least $7 billion to get it through next spring. This is for a company that is expecting to report first half losses of $1.9 billion.

- Who would buy the trade finance unit, which includes the factoring operation? Who has money right now?

- Would a sale mean that my contract with CIT Group would need to be renegotiated? Or, asked another way: Would whoever buys it - if someone buys it - be able to afford to sell at the same rates CIT did?

- The trade finance unit, the one everyone expects will be sold, made a $99 million profit last year. If I’m a buyer, what’s my cost of money to buy that unit and will I be able to make that kind of money with it?

- Another issue that’s come up more recently is that of taking on your own credit department if you’re a supplier. If you don’t have a factor, or your factor is too expensive, do you have the resources to carry your own paper?

- If I’m a supplier and I have a bank I deal with outside of CIT, does my bank want to bank on CIT?

- Finally, what is Mr. Market trying to tell us about CIT?

Another point worth mentioning. CIT hasn’t just experienced organic growth to become the biggest factor around. It has acquired other factors and purchased a good chunk of receivables. To name a few:

In 2003, CIT’s trade finance unit acquired a substantial portion of the U.S. factoring assets of GE Commercial Services, totaling about $446 million.

Also that year, the unit acquired the factoring assets and liabilities of HSBC Bank, with assets of about $1 billion before assumed liabilities and net assets acquired of $270 million.

In 2005, CIT acquired SunTrust’s factoring division, with gross receivables of $867 million and net assets of $238 million.