GNCV: The Return Of Deal Or No Deal - UPDATE

Breaking news at this hour:

CIT Group, the commercial financial lender I discussed this morning after last night's news the company was working a bailout deal with the government, has seen their deal fall apart.

CIT Group, a major lender to small- and mid-sized U.S. businesses, said on Wednesday that talks with the government to bail out the company had ended, a development that could make bankruptcy likely.

"Discussions with government agencies have ceased,'' the New York-based company said in a statement. "There is no appreciable likelihood of additional government support being provided over the near term.''

The announcement came after last-ditch talks in which Treasury Department had been concerned about a worsening liquidity crunch at CIT over the last few days, and that government aid would not put the lender on a path to recovery.

CIT said its management, directors and advisers were evaluating alternatives. It did not elaborate.

A bankruptcy filing would mark one of the largest for a U.S. company since the global credit crisis accelerated last September.

Trading in CIT shares was halted on Wednesday afternoon, with the shares last trading at $1.65, up 4 cents.

Treasury had been considering an aid package that included a temporary loan to give CIT room to strengthen its balance sheet by raising additional capital through debt or equity, a person familiar with the matter had said.

Failure to reach an agreement could result in a bankruptcy, the person said. The person requested anonymity because the talks were private. Other options discussed had been access to the U.S. Federal Reserve's discount window, as well as asset transfers.

Has Obama drawn the line at bailing out any more financial institutions? The rise or ruin of CIT was Obama's first real test of his reaction to Too Big To Fail. Is he finally saying "enough is enough?" Is this some sort of break-neck paced negotiation ploy? Or is CIT Group just too small of a political and financial player for Obama to stick his neck out?

There's no hiding the fact that Obama's numbers are slipping. His approval rating average has dropped from a spread of more than +40% in February (roughly 65% approval - 25% disapproval) to +18.5% now (56% - 37.5%). The political climate has certainly changed. Republicans can't complain too loudly about Obama letting CIT go under, too...not with all the attacks they've made on him spending taxpayer money on private companies.

Still, this is surprising. I honestly figured we'd be seeing another $10 billion or so loan from Treasury. If talks have broken down and CIT is heading for the scrap heap, then I say "good riddance."

We'll see how this shakes out.

[UPDATE 10:05 PM] Financial Times has an interesting article on CIT as well.

The failure of regulators to agree on a last-minute rescue package for the 101-year-old company might starve a large chunk of corporate America of much-needed capital and hit the economy at a time when the recovery appears to be faltering.

In-fighting between the Federal Deposit Insurance Corporation, the Federal Reserve and the Treasury seemed to have killed hopes that CIT would secure a government lifeline.

“They did what everyone else did, but did not get what others got,” said one adviser to CIT, noting that in spite of receiving $2.3bn in bail-out funds and permission to convert into a bank holding company, CIT was denied access to debt guaranteed by the government.

CIT, which has a balance sheet of about $80bn, on Wednesday said it was “evaluating alternatives”, but there is scant hope that any buyers would emerge for the company amid serious concerns over its business model and the quality of its assets.

"In-fighting?" I wonder, who put their foot down and said no to CIT? Could it have been FDIC head Sheila Bair? A couple of weeks ago she came out with a strong statement against the doctrine of Too Big To Fail. I said then that deeds, not words, were what mattered. Could this have been the first deed? Did Bair object enough to kill any deal with CIT?

There's a story here...a potentially huge one. If the government scuttled the CIT deal, specifically Sheila Bair, that could mean that Obama has her back, and that the era of Too Big To Fail might be finally coming to an end.

But I doubt it. Until I hear otherwise, I'm going to chalk this up to "the financial lobby decided to throw CIT under the bus." After all, look how well Goldman Sachs is doing without as much competition as they had just 18 months ago.