IMPEACH BUSH

CIT Group is close to filing an application to become a bank holding company, a step that would bring the US commercial lender easier access to funding but also steeper capital requirements and greater regulatory oversight.

The two largest stand-alone Wall Street firms, Goldman Sachs and Morgan Stanley, as well as American Express have already won commercial-banking charters from the US Federal Reserve, and other non-bank financial institutions, including auto lender GMAC, are seeking a similar status.

CIT executives have been weighing the pros and cons of a Fed charter for more than a month, and appeared set on filing an application as early as Thursday.

News that the US Treasury is considering extending its programme of buying stock in financial-services companies to include non-bank lenders - one of the perks currently limited to commercial banks - has given them some pause, though not enough to drop the plan, according to people familiar with the company's discussions.

The charter would grant CIT eligibility to some of the programs created in recent weeks to revive confidence and liquidity to the credit markets, including US government plans to guarantee banks' debt, and buy their shares.

"To ensure liquidity flows to small and mid-size businesses, CIT is currently considering a variety of options to build its deposit-taking capabilities and secure access to various government programs," a CIT spokesman, who declined to comment specifically on the bank application, said last week.

Wall Street insiders have cautioned that, unlike Goldman and Morgan Stanley, companies such as CIT and GMAC could be forced to make radical changes to their business model if they become banks.

Although access to Fed funding could boost these companies' battered balance sheet in the short-term, the banking charter would subject them to tighter regulation and more demanding capital requirements, curtailing profit growth and constraining their ability to rely on short-term loans for funding.

"In the short term, being a bank holding company can help you to weather the storm, but in the long term it could crimp your ability to deliver profits," a senior financial lawyer said.

General Electric, whose GE Capital division lends to both companies and consumers, has so far eschewed a bank charter application for participation in two specific US programs devised to help boost liquidity.

The company began to borrow directly from the government last month through its commercial-paper facility, and on Wednesday GE Capital joined its banking rivals in winning a federal guarantee on its debt.

Copyright The Financial Times Limited 2008