FDIC Hesitant to Back CIT Debt on Risk

The FDIC remains hesitant to back CIT Group’s (CIT) debt guarantees due to the deterioration in the commercial lender’s credit quality and on concerns about the risk to taxpayers’ money, news service Bloomberg reported late Thursday, citing people familiar with the matter.

From Bloomberg:

The Federal Deposit Insurance Corp. is unwilling to guarantee CIT Group Inc.’s bond sales because the…lender’s credit quality is [deteriorating], according to people familiar with the regulator’s thinking.

The FDIC, which has backed $274 billion in bond sales under its Temporary Liquidity Guarantee Program since Nov. 25, is concerned that standing behind CIT debt would put taxpayer money at risk…CIT, the century-old lender to 950,000 businesses, became a bank in December to qualify for a government bailout and received $2.33 billion in funds from the U.S. Treasury…

Without the TLGP, CIT may default as soon as April, when a $2.1 billion credit line matures, according to Fitch Ratings.
…
A failure of CIT would be the biggest bank collapse since regulators seized Washington Mutual Inc. in September. CIT reported $75.7 billion in assets and $68.2 billion in liabilities, including $3 billion in deposits, at the end of the first quarter.

CIT, notes Bloomberg, has reported more than $3 billion of losses in the last eight q’s, faces $10 billion of maturing debt through 2010 and hasn’t had access to the corporate bond market in more than a year.

The FDIC is reportedly continuing talks with CIT about how the lender can improve its financial situation to get approval, such as by raising capital.

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