Government will lose $2.3 billion from CIT bankruptcy

CIT, the largest firm to go bankrupt after getting a federal bailout, $2.33 billion in taxpayer money to be exact. CIT failed to win a second government bailout in July or persuade bondhoders to swap $30 billion in debt to prevent a bankruptcy filing this month. CIT's Chapter 11 bankruptcy will keep money flowing to bondholders and 1 million customers of the 101-year old commerical lender. To be exact 70 cents on the dollar. Although shareholders and taxpayers won't be as lucky, not to mention that common stock owners could be mostly wiped out.

CIT failed to win a second government bailout in July or persuade bondholders to swap $30 billion in debt to prevent a bankruptcy filing this month. The New York-based lender posted more than $5 billion in losses in the last nine quarters. The filing is the fifth-largest U.S. bankruptcy by assets according to Bloomberg.com.

CIT originated $4.4 billion of new business. The lender funds about 1million businesses such as Eddie Bauer Holding Inc., Dunkin' Brands Inc., it also provides financing to about 2,000 vendors supplying 300,000 U.S. retailers, according to a July statement from the National Retail Federation.

According to Bloomberg.com, CIT's largest unsecured claim holders were Bank of Ameria Corp. as collateral agent for a $7.5 billion claim, and Bank of New York Mellon Corp., as trustee for retail bonds with a claim of $3.2 billion. The government isn't likely to recover it's preferred stock investment, Treasury spokesman Andrew Williams said to Bloomberg.com "We will be following developments very closely with an eye toward protecting taxpayers during the bankruptcy proceeding, but as the company's disclosure on the prepackaged bankruptcy makes clear, with debt holders receiving less than face value of their instruments, recovery to preferred and common equity holders will be minimal."