GE Capital & CIT

One of the big news stories in the last week is the potential bankruptcy of CIT Group. This is a lender which seems to finance small and medium businesses. Rob Cox at BreakingViews thinks that, in the worst case, GE Capital will follow the path of CIT (thanks to Alea for mentioning this story). Unfortunately, BreakingViews doesn't seem to allow one to quote their text so check out that link or get the info somewhere else.

The author mentions some similarities and points out how GE Capital has benefitted from US government support, while the government, for some unexplainable reason, hasn't been as forthcoming with support for CIT. Perhaps its because CIT is much smaller than GE Capital. Similar to GE Capital, CIT was owned by a major industrial company, Tyco, in the past.

I don't know much about CIT or GE Capital but my impression is that GE Capital is more vulnerable to consumer lending (credit card loans) and is more exposed to Eastern Europe than CIT. If non-real-estate debt goes sour (i.e. industrial loans, consumer credit card loans, etc), we will probably see more CIT-type cases. Although I am not expecting problems on the scope of the real estate bust, it is still worth keeping an eye on what happens in this area. Everyone is so concerned about real estate but I think that is looking in the rear-view mirror a bit too much.

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