WASHINGTON – The Obama administration drew a line in the sand on financial bailouts Wednesday by denying emergency aid to CIT Group Inc., a struggling commercial lender on the brink of bankruptcy.
After days of round-the-clock talks with regulators about a possible government bailout, CIT said those negotiations had ceased. The company said its management and directors were “evaluating alternatives.”
The decision not to save CIT is a defining moment for the Obama administration’s financial rescue program. By withholding aid, the administration is betting that CIT’s likely failure won’t pose a critical risk to an economy weighed down by rising unemployment.
CIT, which had earlier received $2.3 billion of bailout money, is one of the nation’s largest lenders to small and midsize businesses. The company has warned that its failure could imperil about a million corporate borrowers – from Dunkin’ Donuts franchisees to retailer Dillards Inc.
The Bush administration paid a price for its decision not to save investment bank Lehman Brothers, which had eight times more assets than CIT. Lehman’s collapse helped spark the financial crisis last fall.
Asked about CIT, a Treasury Department spokeswoman said in an e-mail that “even during periods of financial stress, we believe that there is a very high threshold for exceptional government assistance to individual companies.”
With its assets deteriorating and dangerously little cash on hand, the news left CIT with few options outside of bankruptcy.
A bankruptcy filing would wipe out CIT’s shareholders and the government’s $2.3 billion stake. But CIT’s clients would not automatically lose their lines of credit.