With government talks aimed at averting its collapse having, er, collapsed, CIT appears to be headed for bankruptcy. Dire predictions about a wave of failures by small and medium-sized businesses are still echoing, sustained by uncertainty. The suggestion that other lenders are going to step in and offer financing to CIT clients sounds hollow in the lingering recession.

Paritosh Bansal and Jui Chakravorty spoke with investment bankers who said asset sales under duress would not only draw fire-sale prices in depressed markets — a lethal combination, as AIG found — but could also lead to legal challenges from creditors if deals are rushed through ahead of a bankruptcy filing. Much like AIG, CIT is having trouble valuing its loans. Private Equity is also unlikely to show much interest.

Government efforts to avoid or manage bankruptcy elsewhere in finance and in the auto industry have led, at best, to inefficiency in clearing the dross from the boom years. At worst, the result has been a degradation of faith in investing in credit.

Yesterday we argued that a lender to small and medium-sized businesses would find more broad political support among conservatives, who count on small business as their base. Clearly, that isn’t paying off. But it’s also worth asking who, exactly, is issuing the dire predictions about the impact to the American dream of a CIT collapse.

Interesting detail in a research note on Thursday from Credit Suisse, highlighting how it pays for bankers to sweat the small stuff in these lean times.

The bank’s own research and Dealogic data shows that deals worth less than $100 million have generated average success fees equivalent to nearly 1.2 per cent of the value of the transaction this year. Deals worth $1 billion or more have yielded just 0.2 percent.

As I wrote earlier, Credit Suisse also says that M&A may replace fixed income as a driver of investment banking revenues in coming quarters as the high-grade bond bonanza draws to a close.

British petrochemicals giant Ineos today announced it has received the overwhelming support of its lenders for proposals to ease the terms on much of its 7.5 billion euro debt load.

The deal leaves the company’s debt burden untouched while lenders will accept a back-dated increase in interest payments as well as a one-off fee.

The company spent months preparing a new business plan and discussing options with lenders and financial advisers. They correctly predicted that lenders would have little appetite for a more severe restructuring, such as asking lenders to write off debts in exchange for an equity stake.

Instead, lenders accepted that Ineos could cope with its large debt load if it had the right business plan in place. Asset sales appear to be part of the equation, though the company has repeatedly stated it is under no time pressure to make such sales.

Time will tell whether this works out for Ineos but many restructuring experts worry that lender aversion to writing off debts means companies are being left with excessive debt burdens, even after a round of restructuring.

This was a consistent theme in the recent restructuring of French building materials firm Monier, left with around 1 billion euros of debt.

Much depends on the pace of the recovery, as well as the ability of management to operate in difficult trading conditions and buyers returning to pick up unwanted assets.

If these do not happen trouble may lay ahead: Europe could end up populated by “zombie companies”, burdened by debt and unable to invest in new opportunities for growth.

Barclays mulls a sale of its private-equity arm, AIG says it will pursue a New York public offering for its life-insurance unit, and CIT’s assets appear attractive, but only to bargain-hunters. For these stories and all the rest of the latest deals news from Reuters, click here.

And in the newspapers (some external links might require subscriptions):

* Bank of America Corp (BAC.N) is operating under a secret U.S. regulatory sanction that requires it to overhaul its board and address perceived problems with risk and liquidity management, The Wall Street Journal reported, citing people familiar with the situation.

* Citigroup Inc (C.N) is close to a secret agreement with one of its main regulators that will increase scrutiny for the bank, the Financial Times reported.

* Nippon Steel Corp (5401.T), the world’s second-biggest steelmaker, plans to roughly double its stake in affiliate Nisshin Steel Co (5407.T) to up to 20 percent to strengthen the group’s stainless steel business, the Asahi newspaper reported. Reuters story here.

* The owners of indebted automotive group Porsche SE (PSHG_p.DE) have agreed in principle to accept Volkswagen’s (VOWG.DE) plan for a merger but the deal awaits final approval, German newspapers reported. Reuters story here.

* A consortium led by Manchester Airport Group and Canada’s Borealis has refused to raise its final bid of about 1.4 billion pounds ($2.3 billion) for Gatwick Airport, the Financial Times reported. Guardian story here.