CIT shares rise on hope for aid, restructuring

By Elinor Comlay and David Lawder

NEW YORK/WASHINGTON (Reuters) - CIT Group Inc and government officials remained locked in talks on Tuesday as the lender to thousands of small businesses pushed for government aid in its fight to survive.

Shares of the lender rebounded sharply as investors bet that the discussions would be fruitful, averting a disruption in credit for many companies.

CIT, which finances airlines, railways, retailers and manufacturers, is struggling to refinance debt as the two-year financial crisis has cut off its access to the corporate bond market.

Analysts said that U.S. regulators must weigh how badly a CIT failure would damage confidence in financial markets and hurt credit availability for smaller companies against the costs of government backing for another ailing American company.

A CIT spokesman confirmed that talks with the government continued on Tuesday, but gave no details.

"They're major players when it comes to financing," said Richard Lee, managing director of fixed income at independent broker dealer Wall Street Access. "But I don't see the same type of impact if CIT goes under as when AIG was being batted around and GE Finance and some of the other stalwarts."

The U.S. Treasury, the Federal Reserve and the Federal Deposit Insurance Corp have been exploring aid options for the lender, and there was no indication on Tuesday that the FDIC's opposition to giving CIT access to a debt guarantee program was wavering.

According to people familiar with the matter, the FDIC has expressed concerns about heavy risks associated with CIT's junk-status credit rating, the quality of its assets and its liquidity problems.

The three regulatory agencies, which have been at the heart of financial rescues over the past year, all declined on Tuesday to comment on CIT's situation.

SHARES REBOUND

CIT's shares closed up 19.26 percent at $1.61 on the New York Stock Exchange.

"People are speculating that CIT is going to get government assistance," said David Chiaverini, analyst with BMO Capital Markets in New York.

A CIT spokesman did not respond to requests for comment on the status of talks.

Goldman Sachs analysts said that CIT bankruptcy fears were "overdone" and that the company had some $32 billion of assets it could sell to improve its liquidity. If it does this, it could qualify for some government aid, Goldman's Louise Pitt and Joseph Schatz wrote in a research report on Tuesday.

CIT received $2.3 billion from the Treasury's $700 billion financial bailout fund in December when it converted to a bank.