Say goodbye to more tax dollars.  I predict more stock market volatility next week.

Wall Street Journal
CIT's Swoon Hits Taxpayers
Bankruptcy Filing Expected in Days; Government Infusion of $2.3 Billion at Risk

The $2.3 billion in taxpayer money spent to save CIT Group Inc. is likely to be wiped out, as the lender prepares to file for bankruptcy protection in a high-stakes restructuring plan aimed at keeping the firm in business.

People familiar with the plan said CIT, a major lender to small businesses, intends to file for bankruptcy-court protection in New York within days, perhaps as early as Sunday or Monday. Financial firms such as CIT have historically been sold off or wound down after a Chapter 11 filing, for fear that customers will draw down lending lines and cause a run on the bank. But CIT expects to have enough creditor support to complete a prepackaged reorganization by year-end, a relatively short period for a bankruptcy case of its size.

In a move smoothing its restructuring, the company said Friday that it had persuaded billionaire investor Carl Icahn to support its prepackaged bankruptcy plan. Mr. Icahn, who wanted to push CIT into liquidation, failed to persuade other bondholders to derail CIT's restructuring plan.

With $71 billion in assets, CIT would have the fifth-largest bankruptcy filing in U.S. history, trailing only those of Lehman Brothers Holdings Inc., Washington Mutual Inc., Worldcom Inc. and General Motors Corp. CIT's Utah bank, which has about $10 billion in assets, wouldn't be part of the bankruptcy filing.

One loser from a bankruptcy would be the U.S. Treasury. Late last year it injected $2.3 billion of funds from the Troubled Asset Relief Program to help stabilize the lender, which was weighed down by billions of dollars of bad student loans and subprime mortgages. The government investment is likely to be wiped out, said people familiar with the matter. Common shares would likely drop to zero, too, these people said.

Starting last year the Treasury invested upward of $400 billion in a variety of companies, from auto makers to insurers, to shore up their finances. A number of those companies, such as Goldman Sachs Group Inc. and Morgan Stanley Inc., have repaid the bailout money. A bankruptcy of CIT would be the first time the government recorded a loss on one of its bailout investments.

Taxpayers could have lost more, though. Despite likely losing its $2.3 billion investment, the U.S. government saved possibly billions more in losses when it rebuffed further bailout requests over the summer, after concluding CIT's demise wouldn't threaten the broad financial system.

A filing could also be a blow to some of the tens of thousands of small- to medium-size businesses that are customers of the century-old lender. Unlike public corporations –– which enjoy access to reinvigorated credit markets –– small borrowers are finding capital remains scarce.

Even if CIT emerges intact, its lending capacity could drop to less than 20% of what it was two years ago, according to an estimate by Brian Charles, a debt analyst at R.W. Pressprich & Co. CIT made just under $40 billion in new commercial loans in 2007, not including an additional $45 billion for trade financing, according to company figures. That plunged to just $4.4 billion in the first half of 2009.

CIT's bankruptcy filing "is a risky proposition," said Donald Workman, head of the bankruptcy practice at law firm Baker Hostetler. "It's far from a certainty that they will be able to exit... because of all the challenges a financial services company will face, particularly in this market."


Wall Street Journal
Regulators Seize Nine U.S. Banks

Banking regulators seized nine related community lenders in California, Illinois, Arizona and Texas, representing the collapse of one of the nation's largest privately held bank holding companies that grew through a string of acquisitions dating back to the savings-and-loan crisis of the 1990s.

The nine small banks represented the holdings of FBOP Corp., based in Oak Park, Ill., and owned by a banker who had plowed into real-estate lending around the country.

The Federal Deposit Insurance Corp. said that FBOP, the holding company, wasn't closed as a result of Friday's actions. The nine banks, however, essentially represented all of FBOP's assets, which would potentially leave it without any other operations.

U.S. Bancorp, the large Minneapolis-based regional bank, agreed to assume essentially all of the nine banks' combined assets of $19.4 billion and deposits of $15.4 billion. It is the latest in a flurry of failed-bank acquisitions for U.S. Bancorp, which avoided much of the banking industry's pain due to its conservative strategy.

"This transaction is consistent with the growth strategy that we have outlined many times in the past, which includes enhancing our existing franchise through low-risk, in-market acquisitions," said Rick Hartnack, vice chairman of consumer banking for U.S. Bancorp.

The latest seizures raise the total number of failed banks this year to 115. It is the most failures since 1992, when 181 banks collapsed during the savings-and-loan crisis.

Bank executives and other industry members expect the pace of failures to accelerate through next year as more community banks topple under the weight of bad real estate loans.

The FDIC said the failure is expected to cost the agency's deposit-insurance fund $2.5 billion.

The FBOP banks include Bank USA in Phoenix, Ariz., California National Bank of Los Angeles, San Diego National Bank, Pacific National Bank in San Francisco, Park National Bank in Chicago, Community Bank of Lemont of Lemont, Ill., North Houston Bank of Houston, Texas; Madisonville State Bank in Madisonville, Texas; and Citizens National Bank of Teague, Texas.

The banks, which have a total 153 offices, vary in size. The largest is California National, which had 68 branches and $6.5 billion in assets as of June 30. The smallest is Citizens, a one-branch bank with $102 million in assets that is located about 100 miles south of Dallas.

The FDIC and U.S. Bancorp entered into a loss-share transaction on approximately $14.4 billion of the combined purchased assets of $18.2 billion.

FBOP is owned by banker Michael Kelly, who also serves as its chairman and chief executive. The company bought 28 banks between 1990 and 2007, according to its Web site, expanding from its single bank in Oak Park, Ill., into California, Arizona and Texas.

Along the way, the banks barreled into real estate and FBOP grew into a mid-sized regional entity.

FBOP has been struggling for months, decimated by bad loans and a securities portfolio that took a big hit from investments in preferred stock of government-owned mortgage lenders Fannie Mae and Freddie Mac.

Still, Mr. Kelly was trying to hang on. The company unsuccessfully applied for government funds through the Troubled Asset Relief Program. As recently as a few months ago, he approached potential investors about buying other distressed banks, according to a person familiar with the situation.

Federal regulators clamped down on FBOP in August, ordering the company to raise capital, reduce its real-estate exposure and overhaul its risk-management practices.

What? you expected different?

SW

9?   400, or so, to go.


Wonder how they will space those out.

And I keep buying gold and ammo.

No, this can't be true...yesterday's headlines were calling this the end of the recession because the economy is doing so well.

Yes, the Dow was up 190 on Thursday, indicating the economic recovery was in full swing! And then on Friday, it hit... oh. Oops.

So, CIT says, we need TARP$$ or we'll file for bankruptcy.  They get $2.3 billion from TARP, then file for Ch11 anyway?!





I'm sure glad my grand kids are gonna be born into hock to help these fellas out.



 

FAZ (-3).

The only way for capitalism to work is to let people and businesses who make bad decisions fail.  Bailing out idiot individuals who made bad home purchase decisions, or the idiot banks who made loans that would never be paid back is the worst thing we can do.  Why make prudent decisions if you know there'll be a bailout when things go south?

I guess I don't understand the "crisis".  it said 115 banks have failed,  which is the most since 182 banks failed in the 90's from the savings and loan crisis.  The new collapses are the result of bad real estate loans.


isn't that exactly the purpose of "investing"?  if you make bad loans, you fail? and better, smarter banks that don't make bad loans take up the slack?  


why is everyone shitting their pants about this?

ah the fed breaks the law again... hm 19 billion assetts to 15 billion deposits and it costs the fed 2.5 billion, so those banks were lieing about there asset value by 7.5 billion or 1/3.... the fed is required by law to sieze a bank when the assets reach a 3% cushion, not a 33% loss.

Didn't the Feds dictate to the banks that they had to loan money to folks who couldn't pay it back?  The bank's hands were tied in a lot of these cases.

When you send in your payments to CITI now, does that mean that you're paying interest on your own tax dollars?  

It's okay.

Obama saved 640,000 jobs! Once that Stimulus money really hits we'll be fine!  

Jobless Bankless Recoveryless Recovery... FTW!

http://www.bloomberg.com/apps/news?pid=20601087&sid=awJj2p2GTk.I&pos=1


Well, somebody's gonna have to CIT on it.

It's called "regulatory capture".  Clinton putting in people who were slippery for eight years followed by Bush's benign neglect didn't give us the staff with the balls to properly show institutions like BofA the Federal pimp hand, and this is where it gets us.  Most of the top 20 banks will go under, despite all of the bailout money, just like the top 20 in Texas did for the same reasons in the 1980s.  You cannot stop it.  Only people as divorced from the business cycle as George W. Bush and BH Obama would even try.

According to the Wall Street Journal, CIT filed for bankruptcy Sunday afternoon and the $2.3 billion in taxpayer money spent to save CIT is likely to be wiped out.