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Lender's Financial Issues Could Have Ripple Effect

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Lender's Financial Issues Could Have Ripple Effect

Economy

Lender's Financial Issues Could Have Ripple Effect

Lender's Financial Issues Could Have Ripple Effect

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  • <iframe src="https://www.npr.org/player/embed/106585551/106585530" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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While CIT isn't a household name, it has a million business customers that rely on it to finance everything from buying aircraft to manufacturing goods to stocking retail shelves.

CIT Group announced over the weekend that it's trying to keep itself afloat by getting access to cash through a government program — or through some other means.

"CIT is weak financially," says Bert Ely, a banking expert. "Its debt is rated junk bonds, so it's really sort of borderline."

The company has had to pay higher interest rates to obtain the money it loans out to customers. At the same time, its loan losses keep creeping higher as more of its borrowers default.

If CIT winds up in bankruptcy and its ability to lend is really impaired, Ely says, the many businesses that depend on it may have to cut jobs or reduce investment.

"Many CIT customers have not been able to get credit from banks and to the extent CIT has not meet their needs, they're going to have to look elsewhere," Ely adds.

And banks elsewhere already have tightened their lending.

Treasury Secretary Timothy Geithner says he is monitoring developments.