Goldman Sachs (NYSE:GS), which provided a $3 billion credit facility to CIT Group (NYSE:CIT) more than a year ago, would receive a payment of $1 billion – while US taxpayers would (well, nothing new there) lose $2.3 billion – if CIT, one of the nation’s leading lenders to small and midsize businesses, files for bankruptcy protection, the Financial Times reported late Sunday, citing people familiar with the matter.
The report said Goldman would be owed the payment under the $3 billion rescue finance structure that the bank assigned to CIT in June 6, 2008, before the Treasury bought $2.33 billion of the lender’s referred shares in December.
According to the FT, if CIT defaults or goes bankrupt “it would be required to pay [GS] a make-whole amount that totals $1 billion” under that structure. Goldman would also — always assuming here a bankruptcy filing by the commercial lender takes place — receive payment from credit insurance it holds.
Goldman said: “…The make-whole payment is simply the present value of the spread to be earned over the life of the facility.” [FT]
A failure of CIT, run obviously quite incompetently by CEO Jeffrey Peek, would be the biggest bank collapse since regulators seized WaMu, and put hundreds of manufacturing clients in risk of failure while creating a crisis for as many as 300,000 retailers.