why CIT is not a big deal

jsl

According to CIT March Quarter 10Q

1. much smaller size
2. simple balance sheet -> no complications
3. 59B long term borrowing backed by 50B loan recievables (limited impact)

so why bother.

50B loan will probably be sold cheap to other lenders.

Bond holders might be able to get 50c on a dollar.

Diffusion

Agree. I guess Madoff himself has a bigger impact than 50B.

z_crochio

May the other lenders including FED?
wondering...

No big system damage, but concern is it may bring moods on commercial loans

jsl

FED won't buy.
commercial loan doesn't have foreclosure problem.

jsl

2# Diffusion


impact is more like 20-30B

z_crochio

i thought it has bigger risk than mortage loan default, at least you have a foreclosure house left for creditor? how are commercial loans backed.

Everyone talks about recovery but then the defaults killed CIT, and govn't stand aside, that's a problem. Who wants to jump in...

just thinking

jsl

commercial loans can be asset backed

Diffusion

i thought it has bigger risk than mortage loan default, at least you have a foreclosure house left for creditor? how are commercial loans backed.

Everyone talks about recovery but then the defaults ...
z_crochio 发表于 2009-7-16 01:11

The impact of CIT bankruptcy is that many commercial borrower will lose source of liquidity to support their daily operation. But judging by the size of CIT's balance sheet, most of those commercial borrowers are small business owners. So yes, it will have significant impact, but it is not, as far as it appears now, a systemic one as Lehman or AIG, where many titan players are on the hook.

lite1067

According to CIT March Quarter 10Q

1. much smaller size
2. simple balance sheet -> no complications
3. 59B long term borrowing backed by 50B loan recievables (limited impact)

so why bother.

...
jsl 发表于 2009-7-15 23:28

good sense.

CIT senior notes is trading between 53c-97c as of today close... cash market expects a very high recovery rate while CDS market expects a very low recovery rate.. i am a little confused now.

hithere

The bk of CIT will have big adverse impact on CRE.

z_crochio

Yes, I agree with you and jsl. it won't be like last year or early this year.

I am concerning, that for creditors like JPM, WFC, the big ones, may their asset value of this type become questionable as well, after the default rate is growing high enough to kill someone. But of course only the small ones fall first.  and since now govn't shows a don't care for CIT, then this thing will grow further for sure.

小亥

If you only look at numbers, that's it. Isn't it this simple? You need to check its function and impact to the real economy. It will be bigger than $50B。Small business owner will suffer. Anyway, most of them are republican. Democrat doesn't care.

According to CIT March Quarter 10Q

1. much smaller size
2. simple balance sheet -> no complications
3. 59B long term borrowing backed by 50B loan recievables (limited impact)

so why bother.

...
jsl 发表于 2009-7-16 00:28

Diffusion

Yes, I agree with you and jsl. it won't be like last year or early this year.

I am concerning, that for creditors like JPM, WFC, the big ones, may their asset value of this type become questionable ...
z_crochio 发表于 2009-7-16 01:44

Agree, a valid concern, though one can still argue that CIT's borrower are mostly small business owners who usually have less perfect credit, while big banks like JPM already tightened their lending standard so what happed to CIT might be an isolated case and won't happen to big banks.

Beside commercial loan default, consumer loan default also keeps rising. For now the government can brush off those problems as it does not pose "systemic risk". But as you said, it'll grow and may eventually kill someone real, unless the economy recovers. Anyway, it appears that default is not currently at the crosshair.

多吉

FED won't buy.
commercial loan doesn't have foreclosure problem.
jsl 发表于 2009-7-16 12:55 AM

but commercial loans do have default risk too,
and scale wise it would be much worse than housing...

jsl

14# 多吉


Agree. Just to say that the C&I loans are also backed by something.

To xiaohai,  any event will post some risk to the fragile economy, but one has to draw a line somewhere. CIT didn't make it.

olderfrog

anything too big to fail should be owned by the government.
yes, I still believe communism

mary666

lol

ByStander

According to CIT March Quarter 10Q

1. much smaller size
2. simple balance sheet -> no complications
3. 59B long term borrowing backed by 50B loan recievables (limited impact)

so why bother.

...
jsl 发表于 2009-7-16 00:28

I think the the big deal is the implication of the failure, not the amounts that are involved

wangbin1943

i have no idea about this.

jsl

18# ByStander


Agree. The concern is "how many of those are out there"