CIT Group faces some challenges as it hopes it can move certain operating divisions, such as factoring, to the group’s bank in order to survive, while knowing it’ll also have to rebuild some of those operations.
This story first appeared in the December 21, 2009 issue of WWD. Subscribe Today.
That’s the conclusion from CIT on Friday in a management update the firm provided to shareholders following its exit from bankruptcy proceedings on Dec. 10.
CIT addressed the firm’s liquidity challenge and the recapitalization of its balance sheet during its bankruptcy. It reduced debt balances by $10.5 billion to $44.3 billion, and it now has some debt maturities that don’t come due until 2012. Bondholders now own CIT, having received equity shares in the reorganized firm.
The firm’s goal is to move certain operations, such as the factoring arm, or trade finance division, into CIT’s bank. That will first require regulatory approval. And it still needs to work with the Federal Deposit Insurance Corporation to lift the cease-and-desist order on CIT’s Utah bank. That order prevents CIT’s bank from originating new loans, entering into transactions with affiliates or even accepting new brokered deposits.
CIT’s factoring arm has managed assets of $4 billion. Its factoring volume in 2008 was $42 billion, representing 50 percent of the U.S. market, according to CIT. The group has dedicated $1 billion to the business to ensure liquidity. Still, the financial services firm said “traditional factoring volumes are down due to soft macro-economic conditions and concerns over [CIT’s] bankruptcy.” Also, there were some migrations from traditional factoring to deferred purchase and credit guaranty contracts to “mitigate perceived CIT risk,” the company said.
Using a bank-centric model, CIT also said it hopes to “capture commercial deposits from its corporate finance and trade finance customers,” meaning it would originate new loans against CIT’s bank deposits.
A source familiar with CIT’s plans said recently they “will require extensive negotiations with the FDIC.”