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CIT shares fall as lender seeks federal aid

NEW YORK - In a sign the financial crisis isn't over, CIT Group Inc., the No. 1 lender to small and mid-sized U.S. businesses, is scrambling to get more federal aid.

    by By Stevenson Jacobs, Associated Press, Inquirer
    Published 

NEW YORK - In a sign the financial crisis isn't over, CIT Group Inc., the No. 1 lender to small and mid-sized U.S. businesses, is scrambling to get more federal aid.

The ailing company's stock fell 12 percent, or 18 cents, to $1.35, yesterday as investors, fearing a bankruptcy filing, unloaded shares. A collapse of CIT, whose one million clients include big names such as the franchisee of Dunkin' Donuts and retailer Dillard's Inc., could deal a devastating blow to the economy by cutting off financing just as businesses need it most.

That could force thousands of small and medium-sized companies to cut costs or close - driving up unemployment and dashing hopes for a swift economic recovery.

"They'd have to lay people off, downsize, and maybe shut their doors," independent banking analyst Bert Ely said of CIT's clients. "It would hardly be positive for the economic recovery."

Companies that depend on CIT for financing are already weighing the consequences of possibly losing the lender.

"If CIT were to go away, it would take a financing option away from our franchisees who want to buy stores or expand their networks," said Michelle King, spokeswoman at Dunkin' Brands Inc., parent of Dunkin' Donuts.

A collapse of CIT would have "near cataclysmic" consequences for small to mid-sized apparel firms, said Andrew Jassin, cofounder of industry consultant Jassin-O'Rourke Group Inc.

The retail and apparel industries are preparing for the back-to-school selling period and also are now ordering holiday merchandise.

CIT Group is among the key creditors of Philadelphia Newspapers L.L.C., which owns The Inquirer, the Philadelphia Daily News, and Philly.com.

CIT, which got $2.3 billion in federal-bailout cash in December, said it's talking with regulators about receiving more aid.

CIT, which in April posted a bigger-than-expected first-quarter loss, has been hit hard by the ongoing credit crisis as investors have shied away from purchasing all but the safest forms of debt. Unlike banks that rely on deposits for money, CIT gets funding by selling commercial paper and other types of debt.