Troubled CIT 'talks with lenders'

CIT's customers include retailers, restaurants and airlines

CIT, the troubled American bank, has said it is in talks with "potential lenders to secure financing".

Reports suggest the bank needs to raise anything between $2bn (£1.2bn) and $6bn if it wants to avoid bankruptcy.

Shares in the firm plunged on Thursday, as analysts warned investors should brace themselves for CIT's collapse.

But news of the talks with major banks, including JP Morgan and Goldman Sachs, sent CIT shares up 67% on Friday on hopes that it may avoid going bankrupt.

'Securing finance'

The US government has said it will not offer a bail-out to CIT - which lends to small and medium-sized businesses - after talks collapsed.

Late on Thursday, the bank said it was evaluating options to improve its liquidity and said it was "in discussions with potential lenders to secure financing".

CIT is not a systemic risk in the way Lehman and AIG were Martin Fridson, Fridson Investment Advisors

"CIT indicated that it needs at least $2bn of rescue financing in the next 24 hours or it would likely file," a report from CreditSights, an independent research company, said. "We believe the figure is in the range of $4bn to $6bn plus, making outside capital sources shy away."

"The prudent course for bondholders is to brace for bankruptcy," the report added.

Fitch and Moody's - the credit ratings agencies - downgraded CIT on Thursday, after it said it was unlikely to receive any more government help. The US Treasury said that the government needed to "keep the threshold high" for exceptional aid to individual companies.

Key source

The failure of CIT would remove a key source of credit for thousands of small and middle-sized US firms, which are already struggling in the recession.

If CIT, founded more than a century ago, went bankrupt it would join Lehman Brothers and Washington Mutual on the list of large financial services companies to collapse since the acceleration of the credit crisis in September last year.

But its failure is unlikely to have the same impact, analysts said.

"It's not a systemic risk in the way Lehman and AIG were," said Martin Fridson, chief executive of Fridson Investment Advisors. "CIT isn't viewed as that kind of company."