CIT: A Different Kind of Bankruptcy?
I can't say I understand bankruptcy in the first place. Not my favorite part of CPA Review but this seems fairly clear.
As the CIT Group sought desperately to avoid bankruptcy this summer, it argued that being forced into Chapter 11 protection would spell disaster for its customers: a wide swath of the nation’s small and midsize businesses who rely on the 101-year-old company for financing.
CIT's move will wipe out current holders of its common and preferred stock, likely meaning the U.S. government and taxpayers will lose the $2.3 billion sunk into CIT last year to prop up the ailing company. Goldman Sachs however, will gain $1 billion because of CIT's bankruptcy, according to a report published Oct. 4 by the Financial Times:The payment stems from the structure of a $3bn rescue finance package that Goldman extended to CIT on June 6 2008, about five months before the Treasury bought $2.3bn in CIT preferred shares to prop it up at the height of the crisis...
While Goldman is entitled to demand the full amount, it is likely to agree to postpone payment on a part of that sum, these people added. A CIT filing last week said that it was in negotiations with Goldman "concerning an amendment to this facility".
The $2.3 billion lost in taxpayer funds is the largest amount lost since the government began infusing banks with capital, according to the Financial Times.
Even better, WaPo informs us that this is exactly what the retail sector does not need just before what already promised to be a bitter holiday season.
Read the rest from Jr Deputy Accountant here.