Now CIT Group goes belly up!

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CIT Group | Too fail to Bail?

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As the economists battle with numbers, charts and calculations trying to figure if recovery is here or not, one more financial giant went down fighting. The latest casualty is the CIT Group.

CIT Group is among the largest corporate bankruptcies on record with $71 billion in assets and nearly $65 billion in liabilities, though it is dwarfed when compared to likes of the Lehman Brothers and Washington Mutual. The company said in its bankruptcy petition that it had $800 million in bonds maturing from Sunday through Tuesday.

The current filing becomes more important as it will test waters around the notion of whether a financial company can survive the Chapter 11 process. The struggle to survive has been under close scrutiny by various industry analysts and stakeholders. The group benefitted from the government bailout plan last year when it received $2.3 billion that came in the form of preferred stock. The benefit will certainly be wiped out in the current process and would also mean the first definitive loss in the government’s rescue of the financial system.

Jeffrey M. Peek, the company’s chief executive who had tried to move the firm from its small league playing turf of lending to industrial customers to a larger ground of being a complete financial player will step down by the end of the year.

As for the investors, the bondholders are set to receive about 70 cents on the dollar through the prepackaged bankruptcy, though the company warned that investors could receive as little as 6 cents on the dollar in the alternative, a free-fall bankruptcy that lacked a pre-approved reorganization plan.

The investment bank Evercore Partners, the law firm Skadden, Arps, Slate, Meagher & Flom and the turnaround consulting firm FTI Consulting will represent CIT in its bankruptcy filing.

CIT Bankruptcy Petition