NEW YORK — In a sign the financial crisis isn’t over, CIT Group, the No. 1 lender to small and midsize U.S. businesses, is scrambling to get help from the federal government.
The ailing company’s stock fell toward $1 Monday as investors fearing a bankruptcy-court filing unloaded shares. A collapse of CIT, whose 1 million clients include big names from the franchisee of Dunkin’ Donuts to retailer Dillard’s Inc., could deal a devastating blow to the economy by cutting off financing just as businesses need it most, analysts warned.
That in turn could force thousands of small and medium-size companies to drastically cut costs or shut down.
“They’d have to lay people off, downsize and maybe shut their doors,” independent banking analyst Bert Ely said of CIT’s clients. “It would hardly be positive for the economic recovery.”
CIT’s crisis brought back memories of the brutal losses suffered by such fallen Wall Street firms as Bear Stearns and Lehman Brothers.
It also posed yet another challenge to the Obama administration, which is struggling to right the economy despite an $787 billion stimulus and a raft of federal bailout programs.
For the apparel industry, a collapse of CIT would have “near-cataclysmic” consequences for its small to midsize clients, said Andrew Jassin, of Jassin-O’Rourke Group, an apparel consulting firm.
CIT Group
What is it?: Commercial bank holding company that offers lending, leasing and advisory services to small and midsize businesses.
Why is it in trouble?: CIT faced mounting losses because of mortgage defaults, straining its capital base, and short-term funding sources such as commercial paper evaporated.
And if it fails?: Other banks would have to step in and provide financing and lending to the market CIT specialized in. But some borrowers might not be able to find financing from other lenders.
The Associated Press
