The roller-coaster that is CIT lurched upward as the small business lender emerged from bankruptcy. However, many issues remain; including the naming of a new CEO and board.
CIT hired Egon Zehnder International to recruit a new CEO and Spencer Stuart & Associates Ltd. to recruit new board members. The Troubled Asset Relief Program invested $2.33 billion to prop up CIT in December 2008, and the government may not recover its investment because of the bankruptcy filing. In addition, Chief Executive Officer Jeffrey Peek steps down at year-end after CIT leaves court protection. Peek's compensation for 2008 was $5.42 million.
The company's reorganization is excusing $10.5 billion in debt and allowing it to come out of bankruptcy with equity worth as much as $11 billion. CIT has said it may sell units including its aircraft and railcar leasing businesses. CIT's prepackaged Chapter 11 reorganization was confirmed by U.S. Bankruptcy Judge Allan Gropper.
A CEO of a CIT competitor said, "I would say that CIT's world has changed forever. The bankruptcy only relieved short term liquidity issues not future funding challenges. The cost of money is going to be a lot dearer to them and they are going to have to continue to shrink their balance sheet."
However, retail consultant Emanuel Weintraub said, "CIT has continued to lend even through the bankruptcy. It has lost some clients but within a short period of time, they should be as strong as ever. It is still the leader in the factoring industry. The problem was getting away from their core business."
CIT said it is committing $500 million to support its Small Business Lending group to fund government guaranteed loans in the Small Business Administration 7a and 504 lending programs, as well as $1 billion in funding for its Vendor Financing operating segment. These commitments are in addition to the previously announced $1 billion in funding for its Trade Finance operating segment, which provides factoring services for mid-sized businesses. CIT also expects to generate new loans across its other lending and leasing platforms in 2010.