CIT, Citi: Financial Winners & Losers

Updated with CIT's agreement with Carl Ichan

NEW YORK (TheStreet) -- The decline in financial shares deepend Friday afternoon, leading the entire market to the downside, as yesterday's strong GDP-fueled rally withered into memory and as data came out today that showed further declines in American consumer spending.

The Dow Jones Indstrial Average plunged more than 200 points, or 2.2%, while the Dow Jones Financial Services Index surrendered 2.5% in afternoon trading Friday.

In the biggest company-specific news of the day, word spread that CIT(CIT) would file for a prepackaged bankruptcy as early as Sunday, with Carl Ichan reportedly agreeing to a deal.

The bank had already reached a pact to amend the terms on its $3 billion loan from Goldman Sachs(GS), which was supposed to receive a $1 billion payout if CIT filed for bankruptcy. The deal trims the loan to $2.13 billion; CIT will effectively give up the amount of the loan it hasn't already taken, and pay Goldman a termination penalty of $285 million.

Trading in CIT shares, halted earlier in the session Friday as the bankruptcy news emarged, was frantic. The stock was changing hands recently at 77 cents, down 18%, on volume of nearly 80 million shares.

Goldman Sachs' stock, meanwhile, dropped 3.5% to $172.43.

On Thursday, Treasury Secretary Timothy Geithner told a Congressional panel that the Obama administration's banking-regulation reform plan would allow the government to force giant financial firms, even if performing well, to break apart, if the government felt their sheer size imperiled the health of economy.

The catchphrase Geithner used was "shrink and separate," and his remarks were clearly directed at the handful of megabanks to have emerged from the credit crisis: JPMorgan Chase(JPM), Bank of America(BAC), Wells Fargo(WFC) and Citigroup(C).