CIT Group Vs Citigroup: CIT Files for Bankruptcy...What About Citigroup?

CIT Group vs: Citigroup: is CIT Group related to Citigroup? CIT Group filed for bankruptcy - does that mean anything for Citigroup? All these questions are filling the minds of investors as yet another bankruptcy takes the country by storm.

The worst part of the CIT Group bankruptcy is the fact that they owe US Taxpayers $2.3 billion. This means that even if you don't care about the CIT Group bankruptcy, it still affects you. Your hard earned tax dollars helped bail the 100-year-old lender out of trouble. Did it help? Obviously not. If it helped, CIT Group wouldn't have filed for bankruptcy.

Believe it or not CIT Group is not related to Citigroup. The 1998 merger of Citicorp and Travelers Group created "Citigroup." The CIT group subsequently sued Citicorp, claiming a violation of the Federal Trademark Dilution Act, as well as trademark infringement and unfair competition in violation of the Lanham Act.

Needless to say, CIT Group was not successful in their endeavors and Citigroup was free to keep their name. The court thought that outside of the Internet, there would be virtually no confusion amongst the public. Now that the CIT Group filed for bankruptcy, everyone seems to be very confused.

The CIT Group claims that the bankruptcy will have no long term implications, and that the difficulties will be experienced during the short-term. The only groups that will experience difficulties in the short term will be start-ups and small businesses.

The CIT Group expects that the bankruptcy will be wrapped up in about a month. According to Bloomberg, "CIT asked for court permission to borrow $500 million from Bank of America Corp., saying the loan would fill a financing "void" after other lenders refused to extend it more credit. The company has $1 billion from investor Carl Icahn to fund operations while it reorganizes. The credit line, to be drawn on until Dec. 31, will be a so-called debtor-in-possession loan. It also expanded its $3 billion credit facility by another $4.5 billion on Oct. 28. CIT had asked bondholders to exchange $30 billion in debt for new securities and equity. Icahn made a competing offer."

US Bankruptcy Judge Robert Gerber was requested to schedule a confirmation hearing as soon after December 1, 2009 as possible. Common and preferred shareholders of CIT Group can expect to have their shares cancelled once the company is out of reorganization.

I don't think that the CIT Group bankruptcy is the last of financial company bankruptcies. I hate to say it, but a lot of the stimulus money that is supposed to be paid back to taxpayers will likely never reach the US Treasury's coffers. We've thrown billions of dollars at a problem that would have corrected itself in the free markets. Although we would have experienced a significant decline in wealth, we would likely be nearing the end of the decline right now. After that, we would have been able to rebuild.

It's unfortunate that many think that Citigroup is related to CIT Group. I guess that's Citigroup's karma for using a name so similar to the CIT Group, even after the CIT Group requested that they not do so.

Sources:

Internet Library of Law and Court Decisions: "The Cit Group v Citicorp" http://www.internetlibrary.com/cases/lib_case226.cfm

Bloomberg.com "CIT Group Files Bankruptcy, Seeks to Reduce Debt" http://www.bloomberg.com/apps/news?pid=20601103&sid=aGugBgO.xUZw