Citi are running out of funds

CIT Group Inc. said Thursday that its normal sources of funding have dried up because of the credit crisis, forcing the New York company to draw down its entire $7.3 billion line of backup credit. That could mean trouble for commercial borrowers, since CIT will shrink its lending operations and sell assets in order to conserve cash. While it isn't a bank, CIT is a major lender that specializes in providing financing to companies of all sizes that often can't get all the capital they want from traditional banks. With customers in more than 30 industries and 50 countries, CIT had managed assets of $83.2 billion as of Dec. 31, about the same size as KeyCorp, a regional bank in Cleveland. Since CIT can't fund its operations with bank deposits, it typically relies on a combination of financing including short-term borrowing known as commercial paper as well as asset backed markets and the corporate bond market. But those funding sources have been frozen by the credit crunch. A downgrade by Standard & Poor's on Tuesday made it even harder for CIT, which celebrated its 100th anniversary last month, to find financing. After CIT said it was forced to tap its emergency credit, its shares plunged as much as 45%. In New York Stock Exchange trading Thursday, CIT shares were down 17%, or $2.01, at $9.63, in a sign that investors think the company has bought itself time in a turbulent environment. CIT's problems are the latest sign of tightening credit for small and medium-sized businesses. Mounting defaults on mortgages and other consumer loans have made many banks increasingly cautious about all types of lending, a trend that threatens to aggravate the U.S. economy's slowdown. A Federal Reserve survey in January showed that about a third of banks had toughened standards on commercial loans, while about 40% said they were charging higher interest rates on such loans. CIT must have enough cash to cover $9.7 billion of debt that matures in 2008, in addition to its short-term commercial-paper debt. The largest chunk comes due in May, when the company needs to pay or refinance $3.8 billion of bonds. The company has slightly less than $2.5 billion of cash on hand, and it plans to sell $5 billion to $7 billion in assets.