Big trouble ahead. Bloomberg reports:

“ CIT Group, the 101-year-old commercial lender that saw its funding dry up in the credit crunch, filed for bankruptcy in an effort to cut $10 billion in debt following a failed debt exchange and U.S. taxpayer bailout.

CIT listed $71 billion in assets and $64.9 billion in liabilities in a Chapter 11 petition yesterday in U.S. Bankruptcy Court in Manhattan. The Treasury Department said the government probably won’t recover much, if any, of the $2.3 billion in taxpayer money that went to CIT

More from AP:

“After struggling for months to avert bankruptcy, lender CIT Group has filed for Chapter 11 protection in an attempt to restructure its debt while trying to keep badly needed loans flowing to thousands of mid-sized and small businesses.

CIT made the filing in New York bankruptcy court Sunday, after a debt-exchange offer to bondholders failed. CIT said in a statement that its bondholders overwhelmingly opted for a prepackaged reorganization plan which will reduce total debt by $10 billion while allowing the company to continue to do business.

The Chapter 11 filing is one of the biggest in U.S. corporate history, following Lehman Brothers, Washington Mutual, WorldCom and General Motors. CIT’s bankruptcy filing shows $71 billion in finance and leasing assets against total debt of $64.9 billion.”

My Comment:

Uh oh. So what happened to the government’s hand out to CIT last year?

It goes kaput.  That’s $2.3 billion in return for preferred shares that are now worth zip, nada, zilch. The CIT Chapter 11 also means pain for all the small businesses relying on CIT’s lending to meet pay roll and pay off bills for orders. According to the AP article, CIT is the lender for about 2000 vendors supplying some 300,000 retails stores that depend on them to meet demand during the holiday season (Halloween and Thanksgiving to Christmas and New Year).

The Bloomberg piece says that CIT funds 1 million businesses.

Following in Friday’s 200 plus point drop in the Dow, this looks grim.

I’d get out of all stock positions on the next swing up…if there is one…