These Shares Are a Speculation

Waiting for a lifeline

CIT has already
received $2.3 billion in TARP funds. However, with a debt repayment due
in August and $2.7 billion to repay this year, the key to CIT's
survival may be an FDIC authorization to issue debt with a government
guarantee. The FDIC's Temporary Liquidity Guarantee Program (TLGP) has
enabled banks including JPMorgan Chase (NYSE: JPM), Bank of America (NYSE: BAC), Citigroup (NYSE: C), and Goldman Sachs (NYSE: GS) to issue debt at very attractive rates.

CIT has been waiting for the Federal Deposit Insurance Corp.'s
approval for several months. However, at $75 billion in assets, it
falls shy of the $100 billion level that qualifies a financial
institution as "systemically important" (too-big-to-fail, in plainer
language) and, at this stage in the financial crisis, there is little
congressional support for propping up failing institutions unless
absolutely necessary.

Furthermore, extending the list of TBTF institutions would send a
very unhealthy message; the repercussions of a CIT failure are unlikely
to match those that followed Lehman's bankruptcy.

CIT shares are now officially a speculation

Owning CIT shares isn't in the mad hatter category of owning "old GM" shares (where a total loss is certain),
but it has clearly become a speculation: The risk of substantial (or
even total) capital loss is not insignificant. My sense -- but it is no
more than an educated guess -- is that the administration will
certainly let CIT fail if it comes down to it.

.© 2009 UCLICK L.L.C.