CIT, a key U.S. lender, seeks more bailout aid

NEW YORK - In a sign that the financial crisis isn't over, CIT Group Inc., the No. 1 lender to small and midsized U.S. businesses, is scrambling to get help from the federal government.

The ailing company's stock fell toward $1 Monday as investors, fearing a bankruptcy filing unloaded their shares. A collapse of CIT, whose 1 million clients include big names -- from the franchisee of Dunkin' Donuts to retailer Dillard's Inc. -- could deal a devastating blow to the economy by cutting off financing just as businesses need it most, analysts warned.

That in turn could force thousands of small and medium-sized companies to drastically cut costs or shut down -- 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.

CIT's crisis brought back memories of the brutal losses suffered by fallen Wall Street firms like Bear Stearns and Lehman Brothers. It also posed yet another challenge to the Obama administration, which is watching the economy struggle despite an $787 billion stimulus and a raft of federal bailout programs.

Companies that depend on CIT for financing already are 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 company of the Dunkin' Donuts chain.

For the apparel industry, a collapse of CIT would have "near cataclysmic" consequences for its small to mid-sized clients, said Andrew Jassin, co-founder of Jassin-O'Rourke Group Inc., an apparel consulting company.

The retail and apparel industries, which also include CIT clients like Dillard's and Bon-Ton Stores Inc., is preparing for the critical back-to-school selling period and is in the midst of ordering merchandise for the holidays.

"This could affect the lifeblood of the flow of goods to the stores," said Vincent Arscott, senior director of Fitch Ratings.

Apparel industry insiders say it would be very difficult for rivals to absorb CIT's clients because other lenders already are under financial strain; the fear is that many suppliers would find themselves orphaned, without any access to financing.

Talking with regulators

CIT, which got $2.3 billion in bailout cash in December, said it's talking with regulators about receiving more government help. One possibility is including CIT in the Federal Deposit Insurance Corporation's Temporary Liquidity Guarantee Program, the firm said.

Shares of CIT closed at $1.35 on Monday, down 18 cents, but rebounded to $1.70 in after-hours trading.

Uncertainty over CIT's prospects was heightened by news that the company had retained the law firm of Skadden Arps, whose specialty is bankruptcy cases.