CIT (NYSE:CIT) Closer to Bankrutcy

Investors who have dumped CIT (NYSE:CIT) stock since September 29 are looking smart. The shares have dropped from $1.67 on the 29th to $1.04.

It appears that debtholders of paper from the lender to medium-sized businesses may let it go into bankruptcy. CIT management will try to make this a pre-packaged bankruptcy so that the firm can keep operating and get financing to continue, but, according to Reuters, debtholders may fight that.

The CIT news is a sign that there will be more wreckage due to the credit meltdown that began 13 months ago. Large banks like Citigroup (NYSE:C) and Bank of America (NYSE:BAC) only made it through the crisis because of help from the federal government. One hundred smaller banks have failed this year.

The notion that the credit crisis is over has become widespread. Shares in Citigoup are up almost 70% in the last three months. Even some regional bank stocks have done well. Fifth Third (NASDAQ:FITB) is up 45% during the same period.

But, the real estate crisis is not over. A number of ARM mortgages will reset over the next two years which could push up foreclosures. Commercial real estate troubles will cause defaults in that sector. Banks are also facing rising delinquencies on credit cards.

There may not be any more large financial firm bankruptcies, but there is still enough trouble to go around.

Douglas A. McIntyre