In a sign the financial crisis isn't over, CIT Group , the No. 1 lender to small and mid-sized 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 court filing unloaded the 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.
"The retailing community could be hurt," says Moshe Orenbuch of Credit Suisse on Fast Money. "There would be bondholders (hurt too)."
"They'd have to lay people off, downsize and maybe shut their doors," adds independent banking analyst Bert Ely of CIT's clients. "It would hardly be positive for the economic recovery."
"Three months ago we downgraded the shares," adds Orenbuch. "The earnings power has been severely depleted."
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 Corp.'s Temporary Liquidity Guarantee Program, the firm said.
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 struggling to right to the economy despite an $787 billion stimulus and a raft of federal bailout programs.
Is there any kind of trade here?
"If there is a rally on positive news (i.e. the gov't stepping in) I'd be a seller," says Orenbuch. "because ultimately the earning power of the company could be under a lot of pressure."
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