Déjà vu All Over Again

Is Yogi Berra working in finance?

As the Yankees battle for their 27th potential World Series title, it seems like we’re seeing a replay of last year’s financial mess. CIT Group filed for bankruptcy yesterday. As the former Yankee player would say, it’s like déjà vu all over again.

We’ve seen this movie before: CIT needs cash but can’t raise it. Carl Icahn is willing to loan them fresh operating capital, but only if he can jump the line and get in front of all the other creditors—becoming a “debtor-in-possession.”

Well, last week management asked bondholders who they trust, and they voted overwhelmingly with Icahn. After all, Jeff Peek and his team led CIT into its mess in the first place. This plan keeps the operating companies out of court and CIT retains a reasonable chance of getting through this process.

In some ways, this deal reminds me of WaMu—a white-knight investor stepping in at the last minute to make the customers whole. But it happens at a vastly different time. Last year, WaMu’s ordeal fed a general sense of panic. By contrast, the CIT story has played out in slow motion, and was precipitated by the FDIC saying no.

Well good for the FDIC. If Icahn’s plan works, it will set a precedent as resolution of a huge financial company that doesn’t involve the Feds. As Yogi might say, “You can observe a lot by watching.”

Douglas R. Tengdin, CFA
Chief Investment Officer
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