Hedge fund manager John Paulson is considering a plan that would merge the beleaguered commercial financing and leasing company CIT Group (NYSE:CIT) with failed mortgage lender IndyMac Federal Bank, the New York Post reported today, citing people familiar with the matter.
According to the paper, the merger between the two banks is not part of any formal discussions between CIT and IndyMac, but is a plan that some creditors, including Paulson, have floated.
The New York Post also said the plan of merger was one of several options being discussed to help fix CIT, which has been trying to restructure its operations in recent months to stave off collapse.
Paulson was part of the IMB Management Holdings, a New York-based partnership led by buyout expert J. Christopher Flowers and Steven Mnuchin, which purchased IndyMac from the FDIC earlier in the year.
A merger between the two banks, notes the Post, would help expand CIT’s deposits and diversify IndyMac’s portfolio from mortgages to commercial loans, since the CIT Group is one of the nation’s largest lenders to small and mid-sized businesses. However, there are several obstacles standing in the path of any official proposal. Key among them is a $3 billion lifeline that CIT received in July, which was intended to give the company a short-term cash fix and help reduce its voluminous debt load. The loan, arranged by Barclay’s Capital, carries an initial interest rate of about 10.5% and is backed by as much as $30 billion in collateral.
Representatives of CIT Group and John Paulson could not immediately be reached for comment, the paper said.