The fate of CIT Group Inc. remained in jeopardy Tuesday as the highly indebted lender negotiated with regulators for a government lifeline.
The uncertainty surrounding the finance giant has complicated an already torturous season for the apparel industry as vendors and retailers struggle to shrink the cost of doing business in order to match consumers’ reduced spending. CIT advances vendors cash on their accounts receivable and provides basic financing for small and midsized retail and wholesale operations. Its failure could deprive thousands of apparel firms the fiscal lifeline they need going into the crucial fall and holiday seasons.
CIT’s commercial services unit provides factoring services for 2,000 vendors who collectively sell to 330,000 retailers, according to the company.
Although Tuesday progressed without fresh signals from CIT or federal regulators on the direction of the talks, investors appeared confident about the company’s prospects and pushed the stock up 19.3 percent to $1.61 after an 11.8 percent drop on Monday. CIT shares started the year at $4.51 and has traded as high as $13 and as low as $1.08 over the last 12 months. Even with Tuesday’s advance, shares were priced at less than half their $3.25 closing price as of June 10.
CIT has more than $1 billion in debt coming due by September.
CIT has been trying to keep itself above the water line and talking to regulators, including the Federal Deposit Insurance Corp., which has a program that guarantees newly issued debt. But the FDIC is said to be reluctant to provide assistance because of CIT’s precarious condition. Financial sources have said CIT appeared to have the backing of the Treasury Department and the Federal Reserve.
CIT’s difficulties led Standard & Poor’s to lower the firm’s corporate and counterparty credit ratings to “CCC-plus/C” from “BB-minus/B” Monday. The ratings changes indicated that the debt had become more vulnerable to nonpayment.
S&P said CIT would continue to post operating losses this year and possibly next year.
Despite the new liquidity concerns created by CIT’s crisis, retail stocks fared well Tuesday. The S&P Retail Index advanced 1.6 percent, or 5.01 points, to 322.87, far outpacing the Dow Jones Industrial Average, which increased 0.3 percent, or 27.81 points, to 8,359.49. The S&P 500 ended the day at 905.84, up 4.79 points or 0.5 percent.
Among those joining in the rally were American Apparel Inc., up 18 percent to $3.60; Charming Shoppes Inc., 9 percent to $4.11; Stein Mart Inc., 7.2 percent to $9.81; Tiffany & Co., 6.8 percent to $27; Macy’s Inc., 3.5 percent to $11.02, and Saks Inc., 3.1 percent to $4.29.
As they waited for any indication of CIT’s fate, investors digested a government report on June retail sales, which rose 0.6 percent from May, a more robust showing than the 0.4 percent uptick economists predicted as gasoline and car turnover increased. But sales fell 9 percent from a year earlier as consumers sought to save more amid rising unemployment.