CIT Group Inc , which provides financing to many small and mid-sized businesses, said it remains in talks with regulators to find ways to improve liquidity, after losses resulted in a capital crunch.

CIT, whose shares tumbled 16.3 percent in premarket trading, said it is also discussing how it can bolster its finances if it fails to win access to the Federal Deposit Insurance Corp's Temporary Liquidity Guarantee Program. It said there is no assurance it will be granted access.

The delay in getting FDIC approval has driven CIT deeper into a liquidity crunch. Over the weekend, the Wall Street Journal said the company had hired top law firm Skadden, Arps, Slate, Meagher & Flom LLP to explore a possible bankruptcy filing. A CIT spokesman confirmed that the company had retained Skadden but declined to elaborate.

The government has made it clear that a possible bankruptcy is not seen as a systemic risk to the financial system, the Journal said, as other lenders including JPMorgan Chase & Co and Deutsche Bank AG can take on many of the same loans in which CIT specializes.


To boost liquidity, CIT said it is discussing a transfer of assets into its CIT Bank unit by obtaining a waiver of a Federal Reserve rule that limits such transactions. It said it may transfer vendor finance and trade finance businesses.

CIT has lost close to $3.3 billion since the end of 2007 and has said it has a $10 billion funding gap in the year to March 31, 2010. In December it became a banking company and obtained $2.33 billion from the government's Troubled Asset Relief Program.

The lender has been hard hit by the two-year-old credit crisis and has tried various capital-raising plans -- including growing its retail bank and selling assets and stock -- to pay off maturing debt and prevent further rating downgrades.

It has been trying to increase its bank deposits at CIT Bank to provide a more stable form of funding while capital markets remain restricted.

Last year, CIT shopped its $4.5 billion railcar leasing unit for several months, then shelved this plan after commercial lender GATX Corp , which had been seen as a potential buyer, offered more than $3 billion for a similar business owned by General Electric Co .

CIT shares stood at $1.28 in premarket trade, down from a Friday close at $1.53.

(Reporting by Ajay Kamalakaran in Bangalore and Elinor Comlay in New York; Editing by Muralikumar Anantharaman and John Wallace)