Buckle up. CIT: the ecosystem of suppliers, manufacturers & retailers, its financial problems could produce cash crunches at thousands of businesses.
As a practicing attorney, I know this to be the case. Letting Lehman go down will always be questioned (especially after rescuing Bear Stearns and AIG and working with Back of America on Merrill Lynch). This decision will also.
From The Wall Street Journal:
CIT is a lender to 950,000 mostly small and midsize businesses. It is one of the nation's biggest players in supplying credit and cash advances to retailers and manufacturers, a business known as "factoring." CIT provides them cash upfront and over time, taking over the collection of their receivables and invoices.
If CIT were to seek bankruptcy protection, scheduled payments to customers could potentially be frozen by the court.
The federal government is betting that CIT is not big enough to pose a systemic risk to the financial system. . . . [B]ut because the lender plays a pivotal role in the ecosystem of suppliers, manufacturers and retailers, its financial problems could produce cash crunches at thousands of businesses.
CIT is a lender to 950,000 mostly small and midsize businesses. It is one of the nation's biggest players in supplying credit and cash advances to retailers and manufacturers, a business known as "factoring." CIT provides them cash upfront and over time, taking over the collection of their receivables and invoices.
If CIT were to seek bankruptcy protection, scheduled payments to customers could potentially be frozen by the court.
The federal government is betting that CIT is not big enough to pose a systemic risk to the financial system.
In a typical financing deal, suppliers sell receivables to a "factor" such as CIT so that they can receive some payment immediately and avoid waiting 60 or 90 days for payment from the retailer. CIT typically pays a specified amount upfront, and the remainder once the retailer has paid for the goods. The factor keeps a small percentage of the cash it collects as a fee.
If a mall chain places a $100,000 order for T-shirts, for example, the factor will pay the vendor $80,000 when the T-shirts are shipped, and the remainder when the retailer pays for the shipment.
Big-name department stores and small retailers received calls from vendors who had sold their receivables to CIT and are worried they may not get paid for their goods, according to people familiar with the matter. Some vendors asked the big retailers if they would pay them directly rather than pay CIT, these people said.
CIT services about 300,000 retailers and 1,900 manufacturers and importers scattered all over the world. CIT finances as much as $40 billion in receivables in the U.S., according to a company document.
From The Wall Street Journal:
CIT is a lender to 950,000 mostly small and midsize businesses. It is one of the nation's biggest players in supplying credit and cash advances to retailers and manufacturers, a business known as "factoring." CIT provides them cash upfront and over time, taking over the collection of their receivables and invoices.
If CIT were to seek bankruptcy protection, scheduled payments to customers could potentially be frozen by the court.
The federal government is betting that CIT is not big enough to pose a systemic risk to the financial system. . . . [B]ut because the lender plays a pivotal role in the ecosystem of suppliers, manufacturers and retailers, its financial problems could produce cash crunches at thousands of businesses.
CIT is a lender to 950,000 mostly small and midsize businesses. It is one of the nation's biggest players in supplying credit and cash advances to retailers and manufacturers, a business known as "factoring." CIT provides them cash upfront and over time, taking over the collection of their receivables and invoices.
If CIT were to seek bankruptcy protection, scheduled payments to customers could potentially be frozen by the court.
The federal government is betting that CIT is not big enough to pose a systemic risk to the financial system.
In a typical financing deal, suppliers sell receivables to a "factor" such as CIT so that they can receive some payment immediately and avoid waiting 60 or 90 days for payment from the retailer. CIT typically pays a specified amount upfront, and the remainder once the retailer has paid for the goods. The factor keeps a small percentage of the cash it collects as a fee.
If a mall chain places a $100,000 order for T-shirts, for example, the factor will pay the vendor $80,000 when the T-shirts are shipped, and the remainder when the retailer pays for the shipment.
Big-name department stores and small retailers received calls from vendors who had sold their receivables to CIT and are worried they may not get paid for their goods, according to people familiar with the matter. Some vendors asked the big retailers if they would pay them directly rather than pay CIT, these people said.
CIT services about 300,000 retailers and 1,900 manufacturers and importers scattered all over the world. CIT finances as much as $40 billion in receivables in the U.S., according to a company document.
posted by Sid Cottingham | 6:32 AM
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