CIT bankruptcy deals new blow to recovery hopes

CIT said late Sunday it has agreed a restructuring plan with creditors that will reduce its debt by about US$10 billion (6.8 billion euros).

But Asian stock markets tumbled after the report amid doubts about the prospects for the bank and the U.S. economic recovery.

The group received an emergency loan of US$4.5 billion on Oct. 28 after struggling for months through the fallout of the global financial crisis.

It was also rescued in July after the U.S. government rejected a bailout plea and had received US$2.3 billion of taxpayers money in December last year.

The Wall Street Journal reported Monday this portion of the company's debt will be wiped out in the bankruptcy as will be all common shareholders.

CIT, like many U.S. banks, hit trouble because of the home mortgage meltdown which briefly crippled the global economy and is still causing major pain. The bankruptcy heightened doubts about the strength of the U.S. recovery.

Japanese stocks ended 2.31 percent lower on Monday because of fresh doubts about the sustainability of a U.S. rebound, compounded by CIT's bankruptcy.

Manoj Ladwa, a senior trader at ETX Capital in London, said: "CIT?s bankruptcy is a stark reminder that a full-blown economic recovery is still a long way off. The commercial lending market just got tougher as small businesses will struggle to source funds."

CIT's board expressed confidence that the firm, which provides financing to nearly one million small and middle market companies and operates in 50 countries, could weather the bankruptcy storm.

"With the overwhelming support of its debt-holders, the board of directors voted to proceed with the prepackaged plan of reorganization for CIT Group Inc and a subsidiary that will restructure the company's debt and streamline its capital structure," the company said in a statement after a board meeting.

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