(Wall Street Journal) CIT Group Inc. officials spent the weekend trying to hash out a plan that would help calm markets and convince customers and investors that it can work its way out of a deepening liquidity crunch.
Over the weekend, CIT representatives held discussions with members of Congress, government officials and regulators as they became increasingly nervous hundreds of small and midsize business customers may rush to withdraw funds or try to draw down credit lines.
CIT executives were worried that customers would be rattled by reports over the weekend that it hired a prominent law firm to prepare for a possible bankruptcy filing after so far failing to get additional government assistance.
Company officials and its advisers scrambled to accelerate a plan to address the company's long-term funding needs. Part of that plan, which has been in the works for some time, involves transferring more assets to CIT's Salt Lake City bank and moving cash to the holding company.
In a statement late Sunday, CIT said it is in "active discussions with its principal regulators on a series of measures" to improve its "near-term liquidity position."
The options being discussed include solutions that don't involve access to the FDIC's Temporary Liquidity Guarantee Program, even though CIT's application to that program is still pending.
The company said it is trying to transfer more assets, such as its trade finance and vendor finance businesses, to its bank. If those near-term transfers are approved by regulators, they would help improve its liquidity position, CIT added.
CIT had hoped to get some sort of short-term emergency financing from the government. But it was unclear whether government officials would be willing to step up. They have long felt CIT is not a systemic risk to the financial system and other lenders could step in to provide loans and services to small and midsize businesses, a CIT specialty.
While not as well known as the big commercial banks, CIT is an important test case for the Obama administration. It gives indications of the government's willingness to get involved with financial institutions that aren't deemed as too big to fail, but that play a significant role in the economy.
CIT is a lender to nearly a million mostly small and midsize businesses and companies, and while its failure may not jolt financial markets in a large way, it could hurt the flow of credit to many businesses to whom banks traditionally won't lend.
The government gave the bank-holding company $2.3 billion under the Troubled Asset Relief Program last year but so far hasn't included CIT in a separate program that would allow it to issue debt at low interest rates.
While CIT has limped through the credit crisis, the lender is nearing crisis point, facing $2.7 billion in debt due from now till year end that investors worry it may not be able to make.
By JEFFREY MCCRACKEN and SERENA NG
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