CIT filed for chapter 11 bankruptcy on Sunday and the plan wipes out existing shareholders.
When I first heard about the CIT filing I said "so what". Everybody knew they were going to file some form of bankruptcy eventually. My first thought was "markets are going to tank at the open." The more I thought about it the more I decided it was a relief move rather than a surprise. Since CIT was spiraling downward into oblivion without a rescue in the wings the worst was really already priced into the market.
CIT is the financer for 2,000 manufacturers and suppliers that distribute products to literally hundreds of thousands of retailers and they are the world's third largest lessor of aircraft. They listed $71 billion in assets and $65 billion in liabilities in their filing.
CIT was trying to work out a deal with debt holders for a $5.9 billion debt exchange to prevent the filing but they could not get support making the filing a necessity. CIT just borrowed $4.5 billion last Wednesday.
The bankruptcy is a "prepackaged plan" meaning the major creditors have already signed off on the plan and making the court action a formality.
The bankruptcy will wipe out all existing common and preferred shares including $2.3 billion in preferred stock they gave TARP in an earlier bailout package.
The fact that the bankruptcy was prepackaged and supposedly will not hamper CIT's ability to continue in business actually gave a boost to the futures rather than send them lower. As I type this (4:AM) the S&P futures are up +6.75. It looks like another short squeeze in the making.
I am glad to finally get out of October and we should begin to see a trend form after the high profile economic events this week. The FOMC meeting on Wednesday and the Payroll report on Friday will be market movers.
We also have any "post window dressing" restructuring for funds that dressed up their statements for the end of October. Starting Monday they are now free to unload anything they added for appearance sake over the last few weeks.
I am still not making any position recommendations today but we are getting close. I believe all the factors are lining up for some bullish plays but we need to see the current scenario through to the end and that will be sometime this week. I would rather be cussed for not entering plays today than be cussed later in the week for exiting losers because of the whirlwind of factors in play over the next 3-4 days.
No Open Positions