This piece of news is interesting not because it would impact on any investment strategy…but rather because we are in July 209 and the subprime crisis still haunts the US Treasury. The US government was simply forced to bail out one more bank – this time the smaller CIT bank was impacted.
CIT’s problems surfaced two years ago due to the CEO Jeffrey Peek’s decision taken earlier in the decade to expand into subprime mortgages and student loans, both potentially highly profitable but fraught with added risk. CIT has about $40 billion of long-term debt, according to independent research firm CreditSights. About $1.1 billion of debt will come due in August, followed by about $2.5 billion by the end of the year.
A few other mind blowing numbers:
It has lost close to $3.3 billion since the end of 2007, and in a May regulatory filing said it had $10 billion of funding needs to address in the year ending March 31, 2010.
CIT gained a bank holding company status in December so it could draw $2.33 billion of taxpayer money from the Treasury’s Troubled Asset Relief Program.
It seems that there is a very profitable business indeed to name yourself a bank and then pursue risky strategies – with a high probability to be rescued out by the government afterwards.