NEW YORK (Reuters) – The U.S. Federal Reserve has ordered CIT Group Inc (CIT.N), the cash-strapped corporate lender struggling to avoid bankruptcy, to submit a plan for raising capital and meeting debt obligations within 15 days.
The order from the powerful regulator comes as CIT, which on Monday again warned it may seek bankruptcy protection if debt restructuring efforts fall through, scrambles to line up new financing. CIT’s shares climbed by as much as 19 percent after it announced Wednesday’s order on Thursday.
CIT, which became a Fed-supervised bank holding company in December, agreed that within 60 days it would outline how it will manage credit risk and review its system of setting aside money for loan and lease losses.
Within 75 days, CIT must submit a business plan to improve its financial condition and outline actions to strengthen its management and corporate governance, the Fed said. CIT also requires approval from the Fed before paying dividends or pursuing other transactions.
The lender to small and medium-sized companies has been struggling since 2007 amid spiraling loan losses caused by an ill-timed foray into subprime mortgages.
It received $2.33 billion in bank bailout money from the U.S. Treasury Department in December, but bank regulators last month rejected the 101-year-old lender’s request to issue government-guaranteed debt, which would have helped CIT raise cash in still-turbulent markets.
An investor group last month agreed to provide $3 billion in emergency funds.
Separately, New York-based CIT adopted a tax plan to protect its use of operating losses and other tax assets. The “Tax Benefits Preservation Plan” will discourage people or groups from accumulating more than 5 percent of CIT’s shares, something that CIT said could reduce the value of these tax assets.
Shares in CIT were up about 10 percent at $1.41 in late afternoon trade on the New York Stock Exchange after trading as high as $1.50. CIT shares have fallen more than 65 percent since the start of the year.
(Reporting by Elinor Comlay; Editing by Gerald E. McCormick, Robert MacMillan, Gary Hill)