CIT Considering Selling Assets

July 29, 2009

ist2_7461061-credit-crunchWhile CIT is waiting for the remaining $1 billion dollars from its bondholders, it is now considering selling off some of its assets and bankruptcy is still a possibility. At present CIT is trying to restructure out of court. They were denied additional bailout money by the Obama administration because they could not restructure.

CIT’s corporate finance department is its largest division and in all likelihood, they will keep this division. CIT has noted that it may be difficult to make money on the aviation and railcar business. Microsoft had terminated its relationship with CIT for vendor financing, and CIT is unsure about whether they will keep this division.

There has been some interest in purchasing the bank as Warren Buffet’s company, Berkshire Hathaway and Leucadia National had offered to buy CIT in the spring, but CIT turned down the offer which was too low.

Whether or not CIT is able to restructure now in order to receive the additional $1 billion remains to be seen. However, the bondholders stand to lose money if their efforts to provide the additional financing fail because CIT fails to restructure. It would appear that the bondholders will do what they can to help CIT to protect their investment.

CIT Largest Provider of Factoring Loans

July 28, 2009

ist2_1676456-checklistCIT’s financial woes are affecting the small and medium businesses’ prospects of receiving factoring loans in order to buy Christmas inventory. Factoring involves selling a business’ inventory for cash. Many small and medium businesses were dependent on CIT to provided loans for the purchase of inventory for Christmas. In return, the companies would assign their accounts receivable to CIT.

Now is the time when the businesses need to purchase inventory for the Christmas season and if they do not receive financing, they may not be able to take advantage of increased sales for the holiday season.

It would be risky to enter into factoring negotiations with CIT now, since bankruptcy is still a possibility. If business owners sell their invoices to CIT and CIT files for bankruptcy before the businesses collect the funds, then they would risk losing the money under a bankruptcy.

CIT Bondholders recommend restructure

July 27, 2009

Photo by Alxm

Photo by Alxm

CIT bondholders have recommended that CIT file for bankruptcy with the purpose of restructuring the debt. Firms often file for a Chapter 11 bankruptcy which allows them to restructure the debt to take advantage of lower interest rates.

However, this is not the end of the bank’s problems as they need another $700 billion to pay next year’s debt. In the end, if CIT does go out of business, their debts may be sold to the largest banks in the country. Small business owners would have additional funding through the Small Business Administration which will be guaranteeing small business loans beginning at the end of the month. Additionally, the Treasury Department has funding to buy up business loans.

As discussed in a previous post, there are other options available for small business owners who will be affected by CIT’s financial woes.

CIT and Bondholders Negotiating Over Release of Remaining $1 billion

July 23, 2009

Photo by Idelphoto Courtesy of Stock Expert

Photo by Idelphoto Courtesy of Stock Expert

CIT and its bondholders are negotiating how to release the remaining $1 billion dollars to CIT and have agreed to provide the money by the end of July 1, 2009. CIT has pledged approximately $15 billion dollars in assets as collateral against the loan, which makes this transaction attractive for the bondholders.

CIT plans to transfer some of its customers to its subsidiary bank in Utah. If the deal fails, the Salt Lake City bank is at risk to fail, also.

The Security and Exchange Commission has warned CIT that if it does not secure the money, it will have to begin bankruptcy proceedings. With this move, the economy is beginning to show signs of a recovery. Experts warn that recovery will be slow, however.

Many retailers may be at risk for bankruptcy if CIT fails to receive the money. “The retail sector could be especially hard. CIT serves as short-term financier to about 2,000 vendors that supply merchandise to 300,000 stores, according to the National Retail Federation. Analysts say 60 percent of the apparel industry depends on CIT for financing.”

CIT Rescued by Shareholders

July 21, 2009

Photo by Bluex Image, Courtesy of Stock Exchange

Photo by Bluex Image, Courtesy of Stock Exchange

CIT bank received a pledge of $3 billion from its shareholders to keep it from filing for bankruptcy. It will use $1 billion of it to pay a debt due in August. Although this is a fortunate event, it may still not be enough to keep it the red and the FDIC has indicated it may close the bank down.

The U. S. conference Board has expressed optimism that the economy is showing signs of recovery and this may boost consumer confidence. S & P 500 quarterly earnings are 15% higher than expected.

Across the seas, China has been reporting since March that they are showing signs of recovery as many of the factories are reopening and no more migrant workers are returning home.

Unfair Banking Fees

July 18, 2009

Photo by Markwr Courtesy of Stock Xpert

Photo by Markwr Courtesy of Stock Xpert

Two members of congress have pending proposals for new legislation limiting the amount of fees assessed on bank overdraft and debit card charges. Senator Chris Dodd has proposed that the Federal Reserve finalize a rule to protect consumers from unfair overdraft fees on bank accounts. He suspects that the fees are new fees or they have been increased and has asked that consumers not be charged without their consent.

Representative Carolyn Maloney has proposed the “Consumer Overdraft Protection Fair Practices Act” which would require the banks to notify customers when a debit card charge would trigger an overdraft fee and give the consumer a chance to cancel the transaction on the spot. She is also proposing that consumers be given an opportunity to consent to overdraft loans as fees and that banks not be allowed to manipulate the sequence of postings of checks and debits.

Both of these proposals are pending before the Federal Reserve Board and are separate from the recent New Credit Card Legislation. As during the past Depressions in the United States, this economic crisis of 2008 has resulted in reforms in the banking industry.

For Financing Needs….

July 17, 2009

Financing Options

Financing Options

It is unfortunate that CTI may file for bankruptcy, leaving many small and medium business at risk. However, there are alternatives to seeking loans. Business owners who need additional capital may consider taking an advance against their credit card processing proceeds with their merchant services providers.

This capital, known as business financial services, is available to business owners. It takes 48 hours for the advance to be approved and the money may be available as soon as seven days after the application. The business owners repays the advance monthly by taking a reduction in the amount of credit card proceeds in the amount of the agreed monthly payment.

This may be a way for business owners to re-establish credit at the same time. Business owners who are interested in exercising this option should speak with their merchant services representatives.

CIT Lending Profile

July 17, 2009

sinking dollarIt appears that the Obama administration is firm about its decision to let the “chips fall where they may” with CTI Group, which was a major lender of DIP loans which were made to riskier business borrowers.

A review of their lending profile is very revealing in that it is made up of 58.77% of defaulted loans. Its latest transaction was to Eddie Bauer last week in the amount of $100 million line of credit. Eddie Bauer has had its problems in the last few years as it has just filed for its second Chapter 11 reorganization in the last six years.

CIT ends discussions with the government

July 16, 2009

Another Bank Failure?

Another Bank Failure?

CTI announced yesterday that it has ended negotiations with the Obama administration as it has been told that the U.S. will no longer extend monetary support to bail them out of an impending bankruptcy, despite the reliance of thousands of retailers upon the company.

CTI has been a provider of funding to small and medium businesses for over 100 years. Its current financial woes apparently stem from “venturing into risky corporate and consumer lending and heavy reliance on fickle investors for funds.”

The bank, unlikely to be sold at this point will be the largest bank to fail since Lehman Brothers.

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Online security -the hope for the future

July 16, 2009

Photo Courtesy of Stock Xchange

Photo Courtesy of Stock Xchange

Although information technology companies have suffered along with all the other firms in this economic crisis, the future looks promising for them. Online security is still an issue with many companies, although, surprisingly, they only spend on an average of 1% on information technology services.

There are opportunities to assist the schools and public service companies, as they have not implemented a system for protecting their data. The most popular service is firewall protection and this may be because of the time involved in encryption services. Encryption is “the process of encoding information in such a way that only the person (or computer) with the key can decode it.”

Data encryption is a very secure way of protecting data during online transactions, it would be wise for more companies to investigate this service. Many of the data breaches may have been protected if encryption were a part of the transaction process. The Ponemon Institute reports that “the use of data encryption software can have a significant impact on the number of breaches a company experiences.”