CIT Comes Crashing Down

Stocks are losing ground today, and leading that charge is CIT Group Inc. (NYSE:CIT) on heavy volume.  Its downward slide started yesterday, gapping down after just one day earlier its price shot up about 30% on rumors of potential merger between CIT and IndyMac.  Seems hedge fund manager John Paulson was rumored to have been considering merging the troubled CIT Group with failed mortgage lender IndyMac Federal Bank, according to reports from the New York Post.  The paper said the merger, a plan floated by a number of CIT's creditors including Paulson, was not part of any formal discussions between CIT and IndyMac.

The rumor of the merger was quickly squashed and the bad news kept rolling for CIT as it began drawing up plans for bankruptcy yesterday.  The stock plummeted with a gap down, to close at $1.21/share on 9/30/2009 from  the previous day’s close of $2.20/share on 9/29/2009, total of -45%.  Today it is continuing its slide as shares are down another -7%.  It seems media reports said the most likely resolutions expected to come of this Thursday's deadline for CIT to restructure more than $30 billion in debt were a swap to eliminate at least 30% of that debt load by giving bondholders new equity, or else seeking bankruptcy protection, either through a prepackaged plan, which the company has reportedly already put in place, or a conventional filing that would put the reorganization in the hands of the courts.

If you have invested in CIT, you have suffered through very choppy waters.  Unfortunately, it sounds like the waves may get bigger before there is any smooth sailing.  With the possible bankruptcy looming, the ship may go down altogether.  Even if the lender can restructure its current debt, it may have a very difficult time raising cheap money to lend in the future.  It might be a good plan to steer clear of CIT for the time being.