CIT woes could have silver lining for GE: analysts

BOSTON (Reuters) - The woes of embattled U.S. lender CIT Group Inc could provide a bit of breathing room to larger competitor GE Capital, by giving it a chance to cherry-pick customers or assets, analysts said on Thursday.

CIT, which lends to hundreds of thousands of small and mid-sized U.S. businesses said late Wednesday that government bailout talks had ended, a move that could set the stage for bankruptcy.

A failure of CIT could also make it easier General Electric Co's hefty finance arm to raise interest rates on new commercial loans.

"Taking a big competitor out of the market, even at the lower tiers of credit, tightens pricing," said Steven Winoker, senior analyst at Bernstein Research in New York.

Worries about the future of CIT could help the largest U.S. conglomerate's finance arm to woo away customers from its rival, analysts said.

"CIT's customers might run to GE Capital, I don't think that GE Capital's customers would run someplace else," said Daniel Holland, equity analyst at Morningstar in Chicago.

GE shares were down 14 cents, or 1.1 percent, to $12.10 in midday trading on the New York Stock Exchange, a day before the world's biggest maker of jet engines and electricity-producing turbines is scheduled to report its second-quarter financial results. The slide in GE shares roughly tracked a 1.6 percent decline in financial stocks as measured by the KBW Bank Index.

The largest U.S. conglomerate has been working to pare back its finance arm -- which has become the biggest drag on corporate earnings during the current recession -- to represent no more than 30 percent of earnings. Analysts said they expected GE management to be very selective in sizing up pieces of CIT as acquisition targets, although its aircraft finance unit could be attractive.

Profit at GE Capital has been hard hit by rising defaults on loans in the face of a slowing economy, with heavy investments in commercial real estate a drag.