CIT Poised for 4th Largest Bankruptcy Ever
CIT may not be a household name, but its borrowers are - Dunkin' Donuts, Filene's Basement, Dairy Queen, and many others.
The company is the nation's largest lender to small businesses. It has more than $5 billion of outstanding loans to more than 1 million borrowers. And the government appears ready to allow it to become the fourth-largest bankruptcy in U.S. history, as CBS News correspondent Nancy Cordes reports
"CIT made a lot of very aggressive loans - loans to businesses that are on the financial edge," said Mark Zandi, chief economist for Moodys.com. "Many of them can't pay CIT back; therefore, CIT is in its own financial trouble."
"Discussions with government agencies have ceased," the $60 billion company announced this morning. CIT had hoped for a second government rescue after getting $2.3 billion in bailout funds last fall. ( Read more about CIT's negotiations with the government in CBSNews.com's EconWatch blog.)
So is there any chance, if CIT goes under, that taxpayers will get all that money back?
"I have high hopes and low expectations," said Rep. Jeb Hensarling, R-Tex. "I mean, that's the reason you have bankruptcy courts - to sort out claims of creditors, including those of the American taxpayer."
But what about the borrowers? CIT says it provides 60 percent of the loans to the retail industry.
At the apparel mart in Atlanta today, vendors were in a panic.
"They are a very big player in our business," said Camille Sheppard, owner of Camille & Co. "They own half of our business, I would say."
And with credit still tough to come by, retailers are bracing for a chain reaction - more layoffs, more store closures. Just when the administration is trying to promote optimism.
"I think generally what you are seeing in the U.S. is a very encouraging improvement in the confidence in the overall stability of the financial system," said Treasury Secretary Timothy Geithner.
Government sources tell CBS News they did not believe CIT could ever turn a profit and they didn't want to get stuck holding the bag. Barring a last minute rescue, the company will file for Chapter 11 as soon as tomorrow.
