CIT, the symbolic bridge between Wall St and Main St, verges on collapse as Washington wavers on issue of Moral Hazard

The score: CIT group styles itself as a "bridge between Wall Street and Main Street". Based in NY, CIT is a lender to small and mid-sized companies, which received $2.3bn in taxpayer funds in December (reported by CNN). Jul09, over six months later, it is trying to persuade policymakers/regulators to extend the aid package. CIT share price has been slashed 37% in the past month to $1.35. CDS has skyrocketed. Lawyers have apparently been hired to explore a bankruptcy filing.

Washington is in a quandary - what should it do? You are Washington.

on the one hand,
a) you need to hold the private sector accountable for its actions.

On the other hand,

b) you need to evaluate the impact of non-intervention on the health of the financial system.

The old issue of moral hazard and bailouts.

The cash crunch faced by CIT is described by CNN as follows: "Like many finance companies, CIT funded its operations by borrowing in the debt markets. Question: to what extent did debt market funding contribute to CIT's collapse?

But the collapse of Lehman all but closed those markets to finance companies -- prompting CIT and bigger players, ranging from Goldman Sachs (GS, Fortune 500) and American Express (AXP, Fortune 500), to hurriedly convert themselves to banks." The problem with debt is you have to keep paying it off. CIT has $1bn in debt to pay off next month.

Banks Risky Funding Sources

When Nevada's Silver State Bank failed in September around two thirds of its loan portfolio comprised real estate development and construction loans. The practice of "hot money" or brokered deposits has also been blamed for small bank failures in the US.

European Bank Reforms - Bad for British Business?

The House of Lords sub-committee on economic and finanical affairs has warned of increased INTERVENTION in bank regulation from Brussels and has branded the EC's reforms as "the greatest competitive threat that the UK faces". Their concerns imply that the reforms will increase the cost of doing business in the UK and that they were "emotive rather than rational" (quote from Stuart Fraser, chair of the policy and resources committee). Stuart urged UK finanical institutions to come up with their own suggestions.

The EC wants to intervene in domestic fiscal (taxation) policy.

Is Paulson the Greatest Trader Ever?

Hedge fund manager John Paulson who made $3.7bn betting against sub-prime (and UK banks like RBOS), has cut his short position in Barclays, the day before Abu Dhabi investment corporation (IPIC) pushed the share price down 5% after offloading 1.3bn shares (IPIC wants to maintain a strategic relationship with Barclays however). Paulson's position was cut on 2 June from 1.17 percent to below 0.25% (threshold for disclosure).

Paulson is thought to have lost £100m by holding his short position from November until June09 as Barclays shares have rocketed five-fold, since hitting 51p low in January. He has a property in the Hamptons.

Paulson's fame came from recognising there was a housing bubble in the United States and ACTING ON IT in 2006 while playing with spreadsheets. He made $1.25bn in a single morning from a five-point fall in the markets (late 2007). Initally, Paulson and his aide Paolo Pelligrini looked at buying puts on the S&P but they were just too darn expensive. So they started buying CDS, insurance on debt, which were very cheap. Paulson has since become the subject of a book "The Greatest Trade Ever" by Gregory Zuckerman of the WSJ.

In other news, Intel acquired embedded software provider WindRiver, a synergistic union ($11.50 per share in cash).

And the FSA banned CFD broker Blue Index who were based at St Dunstan's Hill near Old Billingsgate Market.

Stress Tests: Banks need over $74 BILLION!!!

10 of America's 19 largest banks failed stress tests and will need to raise a combined total of $74.6bn in new capital to cover "worst-case" losses. BoA will need $33.9bn (BoA has already absorbed $45bn in federal capital).

A hungry Jamie Dimon Bemoans "Too Many Banks in the United States")

hint(acquisitions, jpm).
acquired(jpm, bearstearns, 2008), acquired(jpm, assets(wamu), 2008).
largestbank(switzerland, creditsuisse, 2009), largestbank(switzerland, ubs, 2008).
ceo(ubs, oswaldgrubel).
loss(sfr(2bn), ubs, q1(2009)), loss(gbp(1.2bn), gbp, q1(2009)).
eurofighter(enter(raf, july(2007)).

purchase( oracle, sun ) && purchase( oracle, java )

before(oracle(software)), after(oracle(software) and oracle(hardware)).
dealvalue( oraclesun, usd(7.4bn) ).
dealtype( oraclesun, cash ).
dealtype( oraclesun, vertical ).

highmargin(oracle), lowmargin(sun) -> ?
ellison(synergies, hardware, software) e.g. iPhone.

communicate to a) shareholders, b) market, c) customers, d) employees, why the acquisition makes sense.