Aug. 18 (Bloomberg) -- CIT Group Inc., the commercial lender seeking to avoid bankruptcy, had a ninth straight quarterly loss as reserves for bad loans more than tripled.

The net loss narrowed to $1.62 billion, or $4.30 a share, in the second quarter from $2.07 billion, or $7.88, in the same period a year earlier, New York-based CIT said yesterday in a regulatory filing. Nine analysts surveyed by Bloomberg estimated a per-share loss of $1.53.

CIT Chief Executive Officer Jeffrey Peek is negotiating with bondholders and considering asset sales to stave off a bankruptcy filing. The lender, which provides financing to almost a million small- and mid-sized businesses, has lost more than $5 billion in the past nine quarters as bad debts soared and the company was cut off from the commercial-paper market, its traditional source of funding.

“I don’t think there’s any good news to come in terms of credit quality,” said Sameer Gokhale, an analyst with KBW Inc. in an interview before the earnings were released.

Provisions for loan losses in the quarter rose to $588.5 million, more than triple the $152.2 million in the year-ago period. Net charge-offs rose to 2.81 percent, up from 2.41 percent in the first quarter, the company said.

The 101-year-old commercial lender said losses drove down the ratio of total capital to risk-weighted assets, a measure of financial strength, to “slightly below” the 13 percent required by regulators. Failure to meet regulatory capital requirements may lead the Federal Reserve or the Federal Deposit Insurance Corp. to take control, according to the filing.

CIT fell 5 cents, or 3.6 percent, to $1.36 at 4:15 p.m. in composite trading on the New York Stock Exchange, and rose to $1.39 following release of the results after the close of regular U.S. trading. The shares are down 70 percent this year.

FDIC Access

CIT became a bank holding company in December to access $2.33 billion from the U.S. bailout program. In July, CIT was denied access to the FDIC’s program to issue government-backed securities.

CIT has been unable to sell corporate bonds in more than a year, and sought a rescue from bondholders after failing to win additional government assistance. The lender has $8 billion in funding needs through June of next year, and will be forced to raise it through asset sales or an extension of its maturing debt, according to yesterday’s filing.

The company secured a $3 billion loan last month from bondholders led by Pacific Investment Management Co. and Centerbridge Partners LP, and began a tender offer. CIT had drawn down the full loan amount by Aug. 4, the firm said.

Bondholder Participation

CIT on Aug. 3 lowered the bar for bondholder participation to 58 percent from 90 percent. The lender yesterday said that as of the expiration, 59.81 percent of total notes outstanding were tendered and not withdrawn, “in excess of the minimum condition.” CIT earlier this month raised the tender price of the notes to 87.5 cents on the dollar from 82.5.

With the goal met, CIT may start debt-for-equity exchanges, according to a person familiar with the matter. If the offer had failed, CIT’s rescue financing from bondholders wouldn’t have allowed the $3 billion loan to be used to pay the debt, and the lender may have been forced to file for bankruptcy, CIT said in a regulatory filing.

There was a risk under the old tender minimum CIT might not have reached the 90 percent needed, and “that could have necessitated a bankruptcy in the near term,” Gokhale said. “This amendment seems to have allowed them to stave off a bankruptcy in the near term.”

CIT this month suspended dividends on some series of preferred stock to save about $50 million a quarter, spokesman Curt Ritter said. The lender also adopted a “tax benefits preservation” plan to protect assets that could be lost in the event of a major change in ownership.

The company is also operating under a written agreement with the Federal Reserve requiring it to submit proposals on how it will maintain adequate capital and improve risk management.

To contact the reporter on this story: Linda Shen in New York at lshen21@bloomberg.net; Dakin Campbell in San Francisco at dcampbell27@bloomberg.net

Last Updated: August 18, 2009 00:01 EDT