CIT bankruptcy deals new blow to recovery hopes

"Under the plan, CIT expects to reduce total debt by approximately US$10 billion, significantly reduce its liquidity needs over the next three years, enhance its capital ratios and accelerate its return to profitability."

CIT Group chairman and chief executive Jeffrey Peek, who has announced he is stepping down at the end of the year, said the plan would allow subsidiaries, including CIT Bank in Utah state, to continue operations.

But not all experts shared the company's confidence.

"There's no guarantee," Scott Peltz, managing director of corporate restructuring at RSM McGladrey told The Washington Post about CIT's prospects, highlighting the need to get an investment grade rating.

In the voluntary Chapter 11 filing with the U.S. Bankruptcy Court in New York, CIT reported total assets of US$71 billion and liabilities of nearly US$65 billion, making the bankruptcy the biggest behind Lehman Brothers, Washington Mutual, WorldCom and General Motors.

Founded in 1908, CIT became the largest lender to the U.S. retail sector, although it also operates in aeronautics, defense and rail and has lent money to technology giants Dell, Microsoft and Toshiba.

Most worries now are focused on CIT's smaller customers, many of whom have fallen behind on repayments during the recession.

"This bankruptcy shows us the clearly the road to strong robust economic recovery is like the road to hell. Paved with good intentions. The ramifications will not be immediate but you can bet your last dime that the retailers and small businesses locked into CIT are going to find it a nightmare for financing," said Manus Cranny, analyst for MF Global Spreads in London.

About 85 percent of the holders of CIT's reported 30 billion dollars in bond debt participated in voting, with 90 percent supporting the bankruptcy plan, the company said.

Public money injected into CIT Group over the past year is expected to be wiped out in the restructuring.

The U.S. government has injected tens of billions of dollars into the banking system because of the crisis. But when the government rejected a rescue in July, a U.S. administration official said the decrease in the level of loans granted by CIT Group indicated that the firm was not too big to fail.

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