Key lender CIT posts $1.68B loss, threatens bankruptcy

Commercial lender CIT Group said in a reg filing it lost $1.68B in the 2nd-Q & again warned it may have to file for bankruptcy protection if it fails to restructure its business. Losses mounted as borrowing costs exceeded income from lending to customers, and as CIT set aside more money to protect against future loan losses. CIT lost $4.30 a share. In the same quarter last year, CIT lost $2.08B, or $7.88 a share, due to $2.55B charge from discontinued operations. CIT's loss from continuing operations during the most recent quarter total $1.62B compared with earnings from continuing operations during the year-ago period of $47.9M. Analysts Thomson polled, on average, forecast a loss of $1.95 a share for the latest quarter. In its quarterly report to the SEC, CIT said there is still "substantial doubt" about its ability to continue operating. Last month, CIT was bailed out with a $3B loan from some of its largest bondholders as it faced a cash crunch. It launched an offer to repurchase $1B in outstanding debt that was successfully completed, helping to stave off a potential bankruptcy filing. Despite completion of the tender offer, CIT is still facing some challenges. It can continue to struggle with liquidity issues as more debt is due to mature next year. CIT Group, one of the nation's largest lenders to small & midsize businesses, has been devastated by the downturn in the credit markets & is trying to restructure its operations to remain in business. CIT used to rely heavily on cheap, short-term debt to fund its operations -- a type of funding that essentially evaporated in the credit crisis last year. With weak credit markets & concerns about its survival, CIT borrowing costs began to outpace the money it generates from lending. CIT recorded a negative net interest revenue of $19.1M in the 2nd-Q, compared with positive revenue of $169.8M a year ago. Furthermore, as the economy remains in a recession, more of CIT's customers are falling behind on repaying loans. That has forced CIT to set aside more cash to cover those losses, a problem nearly all lenders had during the recession. CIT set aside $588.5M for credit losses in the 2nd-Q, compared with $152.2M during the 2nd-Q last year. Some experts fear if CIT collapses it will deal a crippling blow to an economy still bleeding hundreds of thousands of jobs a month despite a nearly $800B fed stimulus program. The retail sector will be hit especially hard. CIT serves as short-term financier to 2,000 vendors that supply merchandise to 300,000 stores, according to the National Retail Federation. Analysts say 60% of the apparel ind depends on CIT for financing. Last week, CIT reached an agreement with the Fed Reserve Bank of NY that puts CITunder the oversight of fed regulators. The agreement requires CIT to submit a plan for how it'll maintain sufficient cash. It must also provide budgets thru the end of '10 that include details about how the company will meet current & future capital requirements.