CIT TARP wipeout is official

The US Treasury loses its entire $2.33 billion TARP investment in CIT Group -- the largest TARP loss to date.

By TheStreet Staff Feb 9, 2010 1:29PM

TheStreetBy Dan Freed, TheStreet

 

The U.S. Treasury has lost its entire $2.33 billion TARP investment in CIT Group (CIT), according to a regulatory filing submitted Monday.

 

The Treasury made the investment in CIT in December 2008, but CIT later ran into trouble after the Federal Deposit Insurance Corp. refused to guarantee its debt, as the FDIC did for larger lenders, including General Electric (GE) and large banks like Citigroup (C), Bank of America (BAC) and Wells Fargo (WFC). CIT filed for bankruptcy protection on Nov. 1, reorganizing and returning to a public listing on Dec. 10.

 

Contrary to what many assumed, the bankruptcy filing did not extinguish all hope for a taxpayer recovery. The Treasury and other preferred shareholders received complex securities called contingent value rights (CVRs), which could have been worth something if CIT Group's stock had reached the mid-50s ahead of Monday's session, according to the estimate of another investor who held CVRs.

 

 

CIT Group is the largest loss on record under the TARP, though American International Group (AIG), General Motors, GMAC, Fannie Mae (FNM), Freddie Mac (FRE), Chrysler and Citigroup each owe the Treasury at least $10 billion each, according to ProPublica.

 

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Linus Wilson, a University of Louisiana professor who has kept a close critical watch on the bailout, just hopes the Treasury has learned its lesson on CIT, should the lender run into trouble again under its new boss, former NYSE Euronext (NYX) and Merrill Lynch chief John Thain.

 

"Taxpayers have already been burned once propping up CIT Group. Hopefully, they will not be forced to do that by misguided Treasury officials again. One thing we learned from the first Chapter 11 filing of CIT Group was that its bankruptcy was a non-event for the markets," Wilson wrote via email.

 

An e-mail to a Treasury spokeswoman was not returned.

 

CIT shares are up 10% this year.

 

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