US Treasury Will Likely Record First TARP Loss

CIT Group Inc. is on the verge of filing for bankruptcy protection.

The Wall Street Journal (link below) is reporting that the company is expected to file for bankruptcy "within days", with some expecting that an announcement may come as soon as this weekend.

Shares of CIT are currently trading at 72 cents after briefly spiking above the $2 mark in late September. CIT shares weakened as rumors of a likely bankruptcy filing began to swirl - the stock dropped over 24% in Friday's session, and an additional 11% in afterhours trading.

The likely bankruptcy filing for CIT is hardly a surprise, and the news certainly shouldn't be shocking to anyone.

What is noteworthy here is that the US government invested $2.3 billion dollars into CIT as part of its Troubled Asset Relief Program (TARP), and that investment would almost certainly be completely lost in a CIT bankruptcy.

This would be the first time that the US government has actually recorded a loss on one of its bailout investments, according to the WSJ.

American citizens who currently own shares of CIT would lose twice in any bankruptcy filing.

Not only will the US Treasury likely lose all of their investment, but common shares of CIT will almost certainly be wiped out as well. Common shares rarely retain any value in a bankruptcy filing.

According to WSJ.com, the Treasury could have sustained a larger hit if they had chosen to invest more money in CIT over the summer. The Treasury opted not to invest more money in CIT after coming to the conclusion that "CIT's demise wouldn't threaten the broad financial system."

Source: CIT's Swoon Hits Taxpayers

CIT Quote


Filed under: The Economic Meltdown