Category Archives: Financial Crisis

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CIT Following in the Footsteps of AIG

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Though CIT Group, a New York-based commercial lender, provides loans to only small and medium-sized businesses, it is still a major player in the lending game, a major player with some major financial troubles. And apparently, the government doesn’t think it’s big enough to qualify for a government-initiated rescue.

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Because of this, it is likely the troubled firm will file for bankruptcy tomorrow, taking away a key source of credit for thousands of U.

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S. firms. On top of that, it appears J.P. Morgan (which recently posted surprising earnings) has a stake in CIT, just as Goldman Sachs had a stake in AIG. Let’s just hope J.P. Morgan’s interest isn’t quite as big.

The Reuters blog puts it most eloquently:

The pairing of almost certain bankruptcy of the little guy lender with the blow-out earnings of Wall Street giants, JP Morgan and Goldman Sachs, makes a strong argument for smaller financial institutions to beef up their operations so they, too, can be too big to fail.

Trading in CIT was halted yesterday and it remains to be seen exactly how its almost-certain failure will affect J.P. Morgan and the rest of the market.

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CIT Group — big, but not big enough.

Bad News for the P/C Insurance Sector

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Though the insurance industry as a whole has fared somewhat well during the current financial crisis, a report out today says P/C insurers haven’t been so lucky.

A.M. Best has reported a surprising drop in net income of 87% for the U.S. P/C insurance sector during the first quarter of 2009.

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The report states that:

  • Net income for commercial lines dropped 52.9% to $1.6 billion in the first quarter, compared to the same quarter last year.
  • Net premiums written for commercial lines fell 7.
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    8% to $46 billion in the quarter.

  • Underwriting losses decreased from .
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    5 billion in the first quarter of last year to $500 million in the first quarter of this year.

  • Policyholder surplus dropped 14.6% to $197.6 billion, according to the report.

Best stated that though the outlook for the U.S. P/C industry remains somewhat bleak for the remainder of the year, the projection for the commercial lines segment (barring mortgage guarantee and financial guarantee insurers) should post an underwriting profit.

The report is available for $65 (for nonsubscribers) at bestweek.com.

The Small Business Crisis

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Though large, corporate failures are what’s grabbing the headlines these days (such as GM, Extended Stay and Six Flags), there has been another crisis brewing — that of the small business failures.

A recent report issued by Equifax states that commercial bankruptcies almost doubled from March 2008 to March 2009 — a staggering statistic. The Western part of the U.S., including California and Texas, was the hardest hit. Equifax states that Los Angeles, Riverside/San Bernardino and Sacramento metropolitan areas led the nation in small business bankruptcy filings in March 2009.

There were some dramatic increases year-over-year in commercial bankruptcy filings in a number of Metropolitan Statistical Areas (MSA). The Chicago MSA increased to 199 bankruptcies from 67 in March 2008; Dallas increased to 162 from 73; Portland to 145 from 65 and Denver 157 from 58.

Other hard-hit metro areas during that same month include:

  • Chicago-Naperville-Joliet, IL
  • Anaheim-Irvine, CA
  • Dallas-Plano-Irving, TX
  • Denver-Aurora, CO
  • San Diego-Carlsbad, CA
  • Oakland-Fremont, CA
  • Portland-Vancouver-Beaverton, OR-WA
  • Atlanta-Sandy Springs-Marietta, GA
  • Houston-Sugar Land-Baytown, TX
  • Oregon (excluding the Portland MSA)
  • California (excluding previously mentioned MSA’s)
  • Seattle-Bellevue-Everest, WA

On the other side, the cities with the fewest small business bankruptcy filings are:

  • Gainesville, Fla.
  • Lafayette, La.
  • Lynchburg, Va.
  • South Bend/Mishawaka, Ind./Mich.
  • Springfield, Mass.
  • Trenton/Ewing, N.J.
  • Amarillo, Tex.
  • Cedar Rapids, Iowa
  • Davenport-Moline-Rock Island, Iowa
  • Durham, N.C.
  • Fayetteville, N.C.

Do you feel that small businesses are hurting in your area? Or are they faring well compared to the corporate giants?

GM Files for Bankruptcy

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And another one bites the dust. Or, at least files for protection from completely biting the dust.

This morning, General Motors announced that it would file for bankruptcy with the U.S. Bankruptcy Court in the Southern District of New York. This came as no big surprise to many, as the Obama administration has been pushing for this outcome — just as it’s doing with Chrysler.

Under the proposed restructuring, about 60% of the new GM would be owned by the United States, about 12% by the governments of Canada and Ontario, a union health trust would own 17.5%, and the company’s current bondholders would get 10%.

The U.S. government has already invested $20 billion into the failing auto giant and they plan to invest another $30 billion during and after the GM bankruptcy process. But will all this save this once mighty flagship of American car manufacturing?

GM is much larger and has a more far-reaching scope than that of Chrysler, which makes this restructuring plan a gargantuan task. But Chrysler seems to be on the right path for reorganization — a federal bankruptcy judge has approved the sale of most of Chrysler’s assets to Italian automaker Fiat.

And I leave you with one last piece of automaker news: If you’re looking for GM on the Dow, you won’t find it. The company’s listing has been replaced by Cisco, marking an end to GM’s 89-year run on the coveted list of 30 U.S. companies.

Today marks the day we have witnessed the largest industrial bankruptcy in U.S. history. Let’s hope we don’t see another company break that record anytime soon.

GM's former CEO, Rick Wagoner, was aked to step down in late March by the Obama Administration.

GM's former CEO, Rick Wagoner, was aked to resign in March by the Obama administration.